For restaurant · retail · medical · gym & franchise tenants

You don't own the building. You spent a fortune improving it.

A leasehold / tenant-improvement cost segregation study analyzes your build-out cost — not a property purchase price. No land, no 39-year shell to strip out, so a far larger share of your basis accelerates into 5-, 7-, and 15-year depreciation. It's a different study from an owner's.

Engineering-method · IRS Pub 5653 · QIP §168(e)(6) · §168(k) bonus · Rev. Proc. 87-56

First, which one are you?

"NNN cost segregation" means two completely different studies depending on whether you own the property or lease it. They have different tax treatment. Pick your situation:

You own the property
NNN owner / investor study

You bought a Walgreens, CVS, Dollar General, bank branch, or QSR pad. You own the land and the building shell. That's a standard commercial cost segregation study — no leasehold logic, no special intake.

You lease the space & paid for the build-out
Leasehold / tenant-improvement study

You're a restaurant, retail, medical, gym, or franchise operator who spent real money building out a leased space. The basis is your build-out cost — and most of it accelerates. This is your study.

Why a tenant build-out reclassifies more than an owner's purchase

In an owner study, the first thing the engineer does is strip out the land (not depreciable) and the 39-year building shell. In a tenant study there's nothing to strip — you never bought the land or the shell. Almost the entire basis is improvement property. Far higher than a typical owner study (25–35%) because a tenant build-out has no land to strip out and little-or-no structural shell — almost the entire basis is 5/7/15-year improvement property. The 15-year QIP bucket plus 5-year equipment usually dominate.

Ranges below are illustrative engineering estimates as a share of the tenant's build-out basis. Basis analyzed is the tenant's build-out cost (construction budget / fixed-asset additions), NOT a property purchase price. Quality depends almost entirely on documentation: depreciation schedule, fixed-asset register, construction budget, AIA G702/G703, and contractor invoices.

Personal property — equipment & FF&E

5-year MACRS

Removable, process-specific equipment and fixtures the tenant installed. The single largest accelerated bucket in most build-outs. Bonus-eligible under §168(k) (PIS after 1/19/2025).

Component Typical basis share
Kitchen / food-service equipment (hoods, walk-ins, prep lines)
Restaurant & QSR build-outs — the dominant driver; minimal for office/retail
 10–35%
Specialty trade fixtures & millwork (bars, display, casework)
Retail fixtures, medical/dental casework, reception millwork
 5–15%
Decorative & accent lighting, signage
Non-general-illumination lighting tied to brand/finish, not building service
 2–6%
Process-dedicated electrical & plumbing connections
Dedicated circuits/connections to specific equipment (vs. building distribution)
 3–8%
Audio/visual, POS, security & low-voltage cabling
Removable, equipment-specific personal property
 1–4%
Window treatments, floor coverings (carpet/tile not part of slab)
 1–4%

Personal property — furniture & certain equipment

7-year MACRS

Office furniture, fixtures, and certain equipment that classify to a 7-year recovery period under Rev. Proc. 87-56 asset class 00.11. Heavier in office and medical fit-outs.

Component Typical basis share
Office furniture & systems furniture (workstations, casework)
 2–8%
Non-process equipment & fixtures (asset class 57.0 / 00.11)
 1–4%

Qualified Improvement Property (QIP)

15-year MACRS

Interior, non-structural improvements to the leased non-residential space, placed in service after the building was first in service. This is the defining bucket of a leasehold study — and it is bonus-eligible under §168(k). Excludes enlargements, elevators/escalators, and internal structural framework.

Component Typical basis share
Interior non-load-bearing partitions & demountable walls
 6–14%
Interior HVAC distribution serving the tenant space
Distribution within the leased premises (not base-building plant)
 5–12%
Interior electrical & plumbing distribution (general service)
 4–10%
Ceilings, interior doors, drywall finishes
 4–10%
Interior fire protection / sprinkler modifications
 1–3%
Flooring finishes affixed to the structure
 2–6%

Structural — generally NOT the tenant's basis

39-year MACRS (or landlord's basis)

The building shell, foundation, roof, and structural framework belong to the landlord and are NOT in a tenant's leasehold study. The only 39-year items that can appear are structural alterations the tenant directly funded (e.g., a new load-bearing element, an enlargement). For most interior build-outs this is small or zero.

Component Typical basis share
Tenant-funded structural alterations / enlargements
Rare in interior fit-outs; enlargements are excluded from QIP
 0–10%
Landlord shell, foundation, roof, envelope
Excluded — landlord's basis, not the tenant's
 —

The mix shifts by what you operate

Same engineering method, very different component mix. Restaurants are 5-year-equipment-heavy; offices are QIP-heavy. Typical reclassification share:

Restaurant / QSR

Highest 5-year share — kitchen equipment, hoods, walk-ins, bars. Reclass often 80–95%.

Medical / dental

Heavy casework, dedicated electrical/plumbing, specialty MEP. Reclass often 70–90%.

Retail

Trade fixtures, display millwork, accent lighting, storefront finishes. Reclass often 70–90%.

Gym / fitness / salon

Specialty plumbing, flooring, equipment connections, finishes. Reclass often 70–90%.

Office

QIP-dominant (partitions, HVAC distribution, finishes) plus 7-year furniture. Reclass often 65–85%.

Worked example: $600K restaurant build-out

Illustrative engineering estimate. Year-1 figures are modeled and depend on build-out scope, §168(k) eligibility, §469 status, entity structure, and your CPA's tax position when the deduction lands.

Situation
Restaurant / QSR interior build-out (tenant-funded)
Build-out basis analyzed
$600,000
Illustrative engineering-estimated reclassification
85% = $510,000 into accelerated MACRS (5/7/15-year)
Estimated year-1 deduction
$510,000 (100% §168(k) bonus on eligible 5/15-year property)
Estimated federal tax savings
$188,000 at 37% federal marginal
Study fee
$1,995

Assumes 37% federal marginal rate and that the build-out qualifies for bonus depreciation. State conformity, passive-activity rules under §469, and entity structure may alter the realized benefit. This is a modeled estimate, not a filing figure — verify with your CPA.

Pricing

Priced on your build-out cost — the basis being analyzed — not on a property value. Every leasehold order is reviewed by our team before your study is delivered.

Build-out cost Study fee
< $250K build-out $1,495
$250K – $750K build-out $1,995
$750K – $2M build-out $2,995
$2M – $5M build-out $3,995
$5M+ build-out By proposal

Form 3115 §481(a) lookback workpapers included where a prior-year build-out is being caught up. Multi-location operators: ask about portfolio pricing.

What makes a leasehold study accurate

Owner studies can lean on public property records. A leasehold study can't — the value is in your build-out detail. The more of these you can share, the sharper (and more defensible) the result. Most are quick to pull from your accountant or contractor:

Depreciation schedule
Fixed-asset register
Construction budget
AIA G702 / G703 (application & certificate for payment)
Contractor invoices
Photos of the finished space

No need to gather everything before you start — upload what you have on the order form, and our team will follow up if anything would sharpen the study.

Frequently asked

I bought an NNN-leased building (Walgreens, CVS, Dollar General). Is this the right study for me?
No — if you own the property, you own the land and the 39-year building shell, and you want a standard commercial cost segregation study, not a leasehold study. NNN ownership is just a commercial property type. Start at the order form (choose Retail / Office / Industrial). The leasehold study on this page is for tenants who paid for the build-out of a space they lease.
Why does a leasehold study reclassify a higher percentage than an owner study?
Because a tenant build-out has no land to strip out and little-or-no structural shell — the landlord owns those. Almost the entire basis you analyze is 5/7/15-year improvement property. A typical owner study reclassifies 25–35% of basis; a tenant build-out commonly reclassifies 70–95%, with the 15-year QIP bucket and 5-year equipment doing most of the work. See IRS Pub 5653.
What is QIP and why does it matter for leasehold improvements?
Qualified Improvement Property (QIP) under §168(e)(6) is interior, non-structural improvement to a non-residential building placed in service after the building was first in service — exactly what a tenant build-out is. QIP is 15-year property and is bonus-eligible under §168(k). 100% bonus was restored permanently by OBBBA for property placed in service after January 19, 2025. QIP excludes enlargements, elevators/escalators, and internal structural framework. Verify treatment with your CPA before filing.
What is the basis you analyze — my rent, my purchase price, or my build-out cost?
Your build-out cost — what you (the tenant) spent improving the leased space. Not rent, and not a property purchase price (you don't own the property). The cleanest inputs are your depreciation schedule, fixed-asset register, construction budget, AIA G702/G703, and contractor invoices. Leasehold study quality depends almost entirely on this documentation.
I paid for my build-out a few years ago. Can I still benefit?
Often yes. A Form 3115 change in accounting method can allow a §481(a) cumulative catch-up of previously-missed accelerated depreciation in the current year, without amending prior returns. We provide the workpaper pack; your CPA files the Form 3115. Verify treatment with your CPA.
What does a leasehold study cost?
Pricing is based on your build-out cost (not property value), since that is the basis being analyzed: $1,495 under $250K, $1,995 for $250K–$750K, $2,995 for $750K–$2M, $3,995 for $2M–$5M, and by proposal above $5M. Every order is reviewed by our team before your study is delivered.

You paid to build it out. Get the depreciation you're owed.

Start your leasehold study and upload your build-out documents — or send your depreciation schedule and construction budget and we'll talk it through first. Every leasehold order is reviewed by our team before delivery.

Own the building instead of leasing it? You want a standard commercial study.