Cost segregation produces a percentage. That percentage — the share of your depreciable basis that gets reclassified from 27.5- or 39-year real property into 5-, 7-, and 15-year MACRS class lives — is what drives every dollar of your accelerated deduction.
Across our work, the typical range is 15–25% for “plain” commercial real estate. But some asset classes routinely push above that range, and the difference compounds dramatically when 100% OBBBA bonus depreciation is applied to those reclassified components. Here are the five property types we see consistently produce the biggest first-year deductions, and why.
1. Hotels and limited-service hospitality (32–40%)
Nothing reclassifies like a hotel. The reason is simple: a hotel is essentially a 39-year shell stuffed with 5- and 15-year property.
- FF&E throughout — beds, dressers, TVs, lobby furniture, restaurant equipment, all 5-year
- Decorative finishes everywhere — carpet, wallcoverings, decorative lighting, millwork in lobbies and rooms
- Specialty plumbing and electrical for the kitchen, laundry, and pool
- Heavy site improvements — landscaping, paving, signage, exterior lighting
A 110-key limited-service hotel in our portfolio recently reclassified 36% of basis. On a $7.5M acquisition, that’s ~$2.7M of accelerated property — the exact case study profile that makes hotel cost segregation almost a no-brainer for any owner with material tax appetite.
2. Restaurants, bars, and food-service (30–45%)
Restaurants reclassify even higher than hotels per square foot, but they tend to be smaller properties with smaller absolute dollar outcomes. The composition is unusually rich:
- Kitchen equipment — ranges, walk-in coolers, hood systems, fryers (5-year, sometimes the entire kitchen)
- Dedicated process electrical and plumbing for the kitchen and bar — not part of the 39-year base building
- Decorative lighting and finishes — restaurant interiors are typically signature design
- Smallwares if owned and itemized — can include place settings, glassware, signage
For owner-operators of QSR or full-service restaurants, the depreciation deduction often substantially exceeds annual operating profit in year one.
3. Medical offices and ambulatory healthcare (28–38%)
Medical office buildings are one of the under-appreciated categories in cost segregation. The construction profile is dramatically different from a vanilla office:
- Specialty plumbing — medical gas, dental water, sterilisation, lab/imaging
- Dedicated electrical for imaging equipment (MRI, CT, X-ray) and emergency power
- Lead-shielded walls in radiology suites — sometimes entire structural systems
- Specialty HVAC for clean rooms, exam rooms, and pharmacy
- Built-in casework — reception desks, exam-room casework, lab benches
A 22,000 sq ft medical office building we studied recently came in at 27% reclassification. The richer the medical specialty (imaging, ambulatory surgery, dialysis), the higher the ratio climbs.
4. Short-term rentals and luxury vacation properties (28–35%)
STRs and high-end vacation homes reclassify well for two reasons. First, they tend to be over-built for their nominal residential classification — granite, hardwoods, decorative lighting, smart-home integrations, hot tubs. Second, they often sit on properties with substantial site improvements: pools, decks, hardscaping, landscape lighting, fire pits, fences.
A lakefront STR in the Smoky Mountains we studied last year hit 31% reclassification on a $640K basis. The combination of decorative finishes, site improvements, and the pool/spa drove the ratio.
(Bonus: STR cost seg pairs with the §469(c) exception — the “STR strategy” — which lets active hosts deduct losses against W-2 income. More on that here.)
5. Multifamily with extensive site improvements (25–32%)
Multifamily is the largest cost-seg market by dollar volume, but the reclassification range varies more than any other asset class — from 15% on a tight urban infill build to 32% on a garden-style suburban property with extensive amenities.
What pushes multifamily into the higher range:
- Surface parking lots and garages — 15-year land improvements
- Landscape, irrigation, fencing, and exterior lighting — 15-year
- Pools, fitness centers, dog parks, mailrooms — 15-year amenity package
- Carpet, kitchen appliances, light fixtures in units — 5-year
- Cabinetry and millwork in units — varies
The garden-style Class B multifamily we mentioned in our case studies hit 28% — and that’s typical for that subcategory. High-rise urban multifamily comes in lower; garden-style suburban comes in higher.
What makes a property reclassify poorly?
The flip side is just as instructive. Property types that consistently come in at 15% or below:
- Urban high-rise office and condo — mostly shell, minimal site improvements
- Bare-bones industrial — large-floorplate distribution with minimal interior buildouts
- Retail pads with limited site work — freestanding banks, single-tenant junk-food
- Properties with small basis ($300K and below) — the engineering cost can outweigh the marginal benefit
None of these are bad cost-seg candidates — they still produce meaningful deductions. They’re just at the lower end of the range.
The reclassification ratio is just one input
Don’t fixate on percentages. A 18% reclassification on a $20M industrial property is $3.6M of accelerated property — far more in absolute dollars than a 35% reclassification on a $700K STR. Your tax planner cares about your dollar deduction, not the percentage.
How to get the most out of your study
Three things you can do before the engineer arrives that will measurably improve your reclassification ratio:
- Pull every construction document you have. Plans, specifications, contractor invoices, change orders. The more we can itemize, the more we can reclassify.
- Identify owner-supplied FF&E and equipment. If you bought appliances, signage, or specialty equipment separately from the building, those typically qualify on their own.
- Document the site itself. Pavement, fencing, landscape, lighting, signage — having photos and any “as-built” site plans speeds the analysis.
Beyond that, choose an engineering-based study (not a desktop estimate). The Cost Segregation Audit Techniques Guide is explicit that engineering-based studies are the IRS-preferred methodology — the higher the rigor, the higher the defensible reclassification.