Retail centers — from neighborhood strip centers to grocery-anchored shopping plazas — carry a mix of structural components, parking infrastructure, signage, and tenant-specific buildouts that most owners simply lump into a single 39-year depreciation schedule. That's leaving money on the table. At Murphy Tax Strategies, we work with retail property owners, CPAs, and commercial real estate professionals to identify components that qualify for dramatically shorter depreciation lives, freeing up capital years or decades earlier than a standard depreciation schedule would allow.

Consider a hypothetical investor who purchases a 45,000-square-foot grocery-anchored retail center for $8,500,000. Shortly after acquisition, the investor completes roughly $900,000 in tenant improvement and site upgrade work — new parking lot paving, updated storefront facades, and reconfigured interior buildouts for an incoming tenant.

Under a standard approach, the full purchase price and improvement costs would depreciate over 39 years, with no distinction between the building shell and the parking lot, lighting, or interior finishes that wear out — or get replaced — far sooner.

By engaging a Cost Segregation Study, an engineering-based analysis typically reclassifies somewhere between 20% and 35% of a retail property's depreciable basis into 5-year, 7-year, and 15-year property — think parking lot paving and striping, exterior lighting, landscaping, signage, and specialty electrical or plumbing tied to tenant improvements. For a property in this range, that could mean $1.9 million to $3.3 million of basis reclassified into shorter recovery periods.

Because current law (as amended by the One Big Beautiful Bill Act, or OBBBA) permanently restored 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025, most of that reclassified basis could be deducted in the very first year of ownership — rather than trickling out over 5, 7, or 15 years.

If the investor also demolished or replaced existing parking lot paving, an old facade, or interior improvements as part of the renovation, a Partial Asset Disposition (PAD) could allow the remaining undepreciated basis of those removed components to be written off immediately, instead of continuing to depreciate assets that no longer exist.

These figures are illustrative only — actual results depend entirely on a property's specific components, construction, and tax situation. No two retail centers produce identical outcomes.

A Cost Segregation Study is an engineering-based analysis that separates a property's cost basis into components with different IRS-recognized depreciation lives. Rather than treating an entire retail building as one 39-year asset, the study identifies items that qualify for:

Shortening these recovery periods accelerates deductions, which improves after-tax cash flow in the early years of ownership — precisely when investors often need liquidity most, whether for tenant improvement allowances, leasing commissions, or debt service.

Retail centers change constantly — tenants turn over, storefronts get remodeled, roofs and HVAC systems get replaced. When a component is removed or demolished, many owners keep depreciating its original cost as if it still exists, simply because no one flagged the disposal.

Partial Asset Disposition lets an owner write off the remaining undepreciated basis of a retired component — a torn-out facade, an old rooftop unit, prior tenant buildout — in the year it's removed. Paired with a Cost Segregation Study on the new construction, PAD can meaningfully increase the total deduction available from a single renovation project.

Retail centers carry ongoing capital demands: tenant improvement allowances, common area maintenance, leasing commissions, and periodic re-tenanting. Capital freed up through accelerated depreciation and PAD is often redirected toward:

Strategic tax planning isn't just about reducing a tax bill — it's a lever for improving the overall return profile of a retail investment.

A Cost Segregation Study and PAD analysis are worth exploring for owners who:

Even properties purchased years ago can often benefit from a "look-back" study that catches up missed depreciation without amending prior returns.

Not all cost segregation work is equal. The IRS expects these studies to rest on defensible engineering methodology and documented cost allocations, not rough estimates. A properly prepared study includes a detailed site inspection or blueprint review, itemized asset classification, IRS-consistent methodology, and documentation built to withstand audit scrutiny. Coordinating the study with your CPA ensures the resulting numbers flow correctly into your tax return.

The ranges above are illustrative, not a promise of outcome. Actual benefits depend on purchase price, construction type, the scope and nature of renovations, ownership structure, and your specific tax position. A property-specific analysis is the only reliable way to estimate what a given retail center might generate.

Does cost segregation work for smaller retail properties, or only large shopping centers? Both. Single-tenant retail buildings, small strip centers, and large grocery-anchored centers can all contain components eligible for shorter depreciation lives — the dollar benefit simply scales with the size and complexity of the property.

Can I still benefit if I bought the property several years ago? Yes. A look-back Cost Segregation Study can often capture missed depreciation from a prior acquisition year without requiring an amended return, depending on your situation.

Is bonus depreciation still available in 2026? Yes. Under the OBBBA, 100% bonus depreciation was made permanent for qualifying property acquired and placed in service after January 19, 2025. Property acquired before that date but placed in service later may follow a different phase-down schedule, so timing matters — this is worth confirming with your tax advisor.

Does every renovation qualify for Partial Asset Disposition? Not automatically. Eligibility depends on what was removed, how the original cost was documented, and how the disposition is reported. A professional review is the right next step.

How do I find out if my retail property qualifies? Start with a complimentary property review. Sharing your purchase price, renovation costs, and ownership details lets us estimate potential benefits before you commit to a full study.

If you own a retail center and haven't had a Cost Segregation Study performed — or haven't reviewed your depreciation schedule since your last renovation — there may be meaningful deductions still on the table.