An example net-lease study, estimated

The property

Consider a representative acquisition: a single-tenant quick-service restaurant pad on a corner outparcel, drive-thru in place, leased to a national operator on an absolute-net basis. The purchase price is $2.5M. This is an illustrative composite built to show how the engineering and the math fit together — it is not a client result, and the figures below are representative rather than drawn from any single study.

The first move is to separate land from improvements, because land does not depreciate and never reclassifies. After allocating the non-depreciable land out of the price, the depreciable cost basis lands at roughly $1,900,000. One point worth stating plainly for net-lease buyers: it is the landlord's cost basis that an engineering-based study works from — the acquired building shell, site work, and any improvements you own. Tenant trade fixtures and operating equipment the tenant installs and expenses are not part of your basis and are not what reclassifies here.

The reclassification

An engineering-based study examines the as-built asset and assigns components to their proper recovery periods under the methods described in IRS Pub 946 and the cost-segregation guidance in IRS Pub 5653. For this representative pad, the reclassification breaks down as follows — each figure is an engineering estimate of the share of basis that belongs in a shorter-life class:

• Roughly $360,000 to 15-year land improvements — the site work that surrounds the building: paving and the drive-thru lane, curbing, striping, site lighting, signage foundations, landscaping, and underground utilities serving the site rather than the structure.
• Roughly $190,000 to 5- and 7-year personal property — building components that function as part of the operation rather than the structure itself, such as dedicated kitchen and equipment circuits, decorative and specialty finishes, and similar non-structural items.

Combined, that is roughly $550,000 moved out of the 39-year structural pool and into shorter-life classes — about 29% of the depreciable basis. The remaining balance stays in the long-life structural class. The exact split on any real asset depends on what the engineering documents, which is why these are estimates and a study replaces them with itemized component detail.

The modeled year-1 figure

The reclassification above is an engineering output. The year-one depreciation figure is a different kind of number: it is a modeled tax estimate, not an engineering measurement, and it depends on facts specific to your return. Treat it as illustrative.

Property reclassified into the 5-, 7-, and 15-year classes is bonus-eligible, and where the bonus rate applies at 100%, the full reclassified pool can be eligible to be expensed in the placed-in-service year. On this representative pad that models to roughly $560,000 in year one — the reclassified components, plus the first-year structural depreciation on the long-life balance.

The bonus rate is not a constant; it follows the placed-in-service date. Note in particular that 2025 is a split year — assets placed in service January 1–19 fall under a 40% bonus rate, while those placed in service January 20 or later are eligible for 100%. Before reading any year-one figure as your own, confirm the rate that applies to your acquisition date. We walk the schedule by year in bonus depreciation by PIS year. This is a modeled estimate of recovery timing, not a statement of what you will deduct — your filed result depends on your own facts.

What changes the numbers

A representative example holds the variables still; a real asset does not. The figures above move with the specifics of the property and the return:

• Tenant build-out intensity and land allocation. A pad with extensive site work and a heavy equipment package carries a larger short-life share than a bare shell; the land allocation drawn from the purchase determines how much basis is depreciable in the first place.
• The bonus rate for the placed-in-service date. As above, the rate follows the date — the same reclassification produces a very different year-one figure at 40% than at 100%.
• Lookback versus current-year. For a property already in service, the reclassification is typically caught up through a §481(a) adjustment rather than recognized as a current-year placement, which changes the timing.
• Your tax posture. The passive activity rules under §469, state conformity (several states decouple from federal bonus), and your entity structure all shape what the modeled deduction is actually worth on your return.

One case deserves its own treatment: a property acquired through a 1031 exchange carries replacement-property basis forward from the relinquished asset, so the depreciable basis and the year-one model are built differently from a straight cash purchase. We cover that in 1031 exchanges and cost seg. For more on which components reclassify on a net-lease pad and why, see what reclassifies on a net-lease pad.

From estimate to study

An estimate gives you a defensible range; a study gives you the documented component schedule behind it. The example on this page stands in for that work — representative percentages where a real engagement produces an itemized basis allocation tied to the as-built asset and the methods in IRS Pub 946 and Pub 5653. The reclassification narrows from a modeled range to specific component detail, and the year-one figure resolves against your actual placed-in-service date and tax facts.

To see the modeled numbers for your own net-lease asset rather than a representative one, run it through the estimator at costsegsmart.com/order. The property type is prefilled and it takes about two minutes. Back to the net-lease cost segregation overview.