Overview
A 4-story Class B suburban office building in Phoenix. Multi-tenant general office occupancy, mid-2000s construction with subsequent tenant turnover refreshes. Acquired for $5,500,000 in 2024.
The Cost Seg Smart engineered analysis identifies $1,259,581 in accelerated bucket components (26.8% of the $4,697,000 depreciable basis after a 14.6% land valuation).
What the analysis identifies
The 32,000 SF property carries the component density typical for a Class B suburban office. The component inventory pulls the following share into accelerated buckets:
- tenant-finish carpet, decorative partitions, and dedicated tenant HVAC zones
- specialty lighting in tenant suites and decorative lighting in lobby and common areas
- the parking lot (the largest single 15-year line), site lighting, monument signage, and exterior landscaping
- dedicated electrical for tenant suites (data raceways, dedicated circuits beyond base building service)
Item-level engineering documentation supports each classification — photographs of mounting details, mechanical schematics for HVAC and plumbing classifications, electrical schedules for dedicated-circuit identification.
Reclass breakdown
| Bucket | Amount | % of basis | MACRS section |
|---|---|---|---|
| 5-year personal property | $720,402 | 15.3% | Section 168(e)(3)(B); Section 1245 |
| 7-year specialty | $55,933 | 1.2% | Section 168(e)(3)(C); Section 1245 |
| 15-year land improvements | $483,246 | 10.3% | Section 168(e)(3)(E); Section 1250 |
| 39-year structural | $3,437,419 | 73.2% | Section 168(c); Section 1250 |
| Total depreciable basis | $4,697,000 | 100% |
Land value (excluded from depreciable basis): $803,000 (14.6% land allocation, Phoenix AZ market).
Year-1 federal tax savings
Assuming 100% bonus depreciation per the One Big Beautiful Bill Act (OBBBA, 2025), the full accelerated bucket components are deductible in year 1:
- Accelerated bucket total: $1,259,581
- Federal tax savings at 37% top bracket: $466,045
For a passive investor, the deduction creates a passive loss offsetting passive income. For a taxpayer qualifying as a real estate professional under Section 469(c)(7), the deduction offsets active income — including business operating income from non-real-estate sources.
Methodology applied
The engine applied the following parameters:
- Era profile: 2002 build, finish density and component weights calibrated to construction-era patterns
- Geo factor: 0.88 (Phoenix MSA, metro calibrated)
- Component count: 45 distinct line items in the inventory
- Indirect cost multiplier: 1.25 (standard 25% indirect uplift covering soft costs, contingency)
- PPI multiplier: 1.04 (BLS construction cost index applied from build year to acquisition year)
- QC status: PASS (engineered analysis cleared all 16 quality-control checks)
The land valuation used the statistical source. Properties where the county assessor record is within reliability tolerances may produce a different land allocation; the engineered methodology applies the most defensible source available.
Audit considerations specific to this property
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Tenant-specific vs base building HVAC: The 5-year bucket includes dedicated tenant-zone HVAC. The engineering documentation traces duct runs and circuit schedules to establish that the equipment serves a specific tenant rather than the whole building.
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Decorative vs structural partitions: Interior partitions classified as 5-year personal property must pass the Section 1.48-1(c) permanence test — removable without damage to the structural envelope. Photographs of mounting details support the classification.
-
Parking lot allocation: The 15-year bucket includes the full parking lot (asphalt, subbase, striping, curbs, drainage). The audit verifies the cost allocation against site work line items.
Return profile
| Metric | Value |
|---|---|
| Study cost (typical) | $4500–6500 |
| Year-1 federal tax savings (37% bracket, 100% bonus) | $466,045 |
| Year-1 ROI on study fee | 72×–104× |
| Total accelerated depreciation pulled forward | $1,259,581 |
The ROI calculation reflects gross year-1 tax savings against the typical study cost range. Net present value of the strategy depends on hold period (longer holds capture more time value) and recapture treatment at sale.
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