Illustrative Office Building
A hypothetical office purchase used to show 39-year structure, possible movable partitions, and later QIP interiors. Educational information, not tax advice.
Educational information, not tax advice.
Updated 2026-10-14
Assumptions
- Educational information, not tax advice.
- Assume a speculative office used as offices, not a dwelling and not manufacturing.
- Assume drawings and a test-fit exist. Original 1980s construction invoices do not.
- Assume the purchase file is read for a written allocation. Peco Foods is a risk if a §1060 writing exists; it is not assumed to apply to every office closing.
- Any dollar figures below are invented for arithmetic only. They are not a typical mix and not a client result.
Key takeaways
- The shell is 39-year nonresidential real property: structure, elevators, restrooms, and central HVAC.
- Metro National is one memorandum on partitions, not a template for every drywall office.
- Later interior work may be QIP for the taxpayer who places it in service, which is a different statute from the original building class.
- There is no IRS office matrix. Classification leans on Treas. Reg. §1.48-1, inspection, and fact-specific cases.
An investor buys a 1980s office and commissions a study because drawings and a test-fit exist. Most cost remains 39-year structure, elevators, restrooms, and central HVAC. Suppose, for arithmetic only, a $6 million purchase of which $1 million is land. Invented depreciable basis is $5 million. No short-life percentage is claimed.
If inspection shows demountable partitions that have been moved and are not part of the original atrium wall, Metro National is the comparison case — with its limits. A later owner-funded interior after purchase may be analyzed as qualified improvement property, which is a different statute from the original building class.
Order of operations: land, 39-year building class, site paving and other land improvements, personal-property candidates (movable partitions, furniture, some decorative lighting), records and inspection, reconciliation, CPA on Form 4562. Do not treat every drywall office as 5-year personal property because one memorandum allowed movable partitions.
What not to do
Do not treat every drywall office as 5-year personal property because one memorandum allowed movable partitions. Metro National Corp. v. Commissioner, T.C. Memo. 1987-38, allowed movable gypsum partitions and some decorative lighting on its facts, and denied atrium storefront walls, lay-in ceilings, and lawn sprinkler heads. That is one fact pattern, not an office playbook.
Treas. Reg. §1.48-1(e)(2) lists partitions, floors, ceilings, central HVAC, plumbing, wiring and lighting fixtures, stairs, elevators, and sprinklers among structural components. Room-dividing partitions that are part of the building plan generally stay with the building. Readily removable and reusable partitions can be personal property on their facts. Courts have split; present the outcome as fact-specific.
Purchase allocation
Read the purchase agreement and any exhibit that allocates price among land, building, and personal property. If a written §1060 allocation exists, Peco Foods is the risk that a later study cannot contradict it. The ATG says the scope beyond §1060 acquisitions is unclear. This illustration does not say every office closing is bound. It says read the file.
Furniture, cubicles, and equipment billed separately after closing belong in those accounts. Do not pull them out of the building residual a second time.
Site work and building systems
Surface parking, sidewalks, and perimeter fencing are usual 15-year land-improvement candidates (class 00.3). A parking garage is a building. Exterior lighting that is site lighting is analyzed on function; building-mounted life-safety lighting stays with the building. Landscaping that would be destroyed with a related depreciable asset can be 15-year; extra lawn on surplus land stays land.
Central HVAC, elevators, restrooms, and general lighting stay 39-year. The sole-justification exception in §1.48-1 for machinery whose only purpose is process temperature or humidity is a process-equipment rule, not a reason to split a rooftop unit that cools offices. The IRS does not treat HVAC allocation the way it treats electrical functional allocation.
Later interiors as QIP
Interior improvements this taxpayer makes after the building is placed in service may be qualified improvement property — 15-year — if they meet §168(e)(6). Enlargements, elevators and escalators, and internal structural framework are excluded. A refresh of paint and carpet in an existing suite can still be QIP if it is interior, nonresidential, and not an excluded category; whether particular costs are improvements under Treas. Reg. §1.263(a)-3 is a prior question for the CPA.
QIP is not the original 1980s shell. Mixing those statutes in one line on the schedule is an error a reviewer should catch.
Records, QA, and filing
Because invoices are gone, the cost-estimate approach applies: inspect, take off quantities, cite a published or contractor source, and reconcile to the invented $5 million (or actual) depreciable basis. The ATG lists a detailed description of methodology, legal analysis, common nomenclature, and identification of §1245 property among quality elements. Creative labels — the guide’s example is sewage piping called process piping — are a warning sign.
CostSeg SI describes classification and quality-assurance stages as proposed Super Intelligence workflow, not as operational agents that finalize classes or certify an engineer. The ATG lists thirteen principal elements of a quality study — methodology, documentation, interviews, nomenclature, legal analysis, take-off, reconciliation, indirects, identification of §1245 property, and related aspects such as method change — as what examiners look for, not as an IRS approval stamp. The CPA files Form 4562 and, if this is a look-back, generally Form 3115. Used-property bonus, if any, follows Notice 2026-11, including related-party tests. Educational information, not tax advice.
Sources
- 1Metro National Corp. v. Commissioner, T.C. Memo. 1987-38(opens in a new tab)
IRS written determination that summarizes the decision.
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- 5IRS Publication 5653 — Cost Segregation Audit Techniques Guide (rev. 2-2025)(opens in a new tab)
Written for IRS examiners. The guide states it is not an official pronouncement of law and cannot be cited as authority. It predates the July 2025 law.
- 6IRS Publication 946 — How To Depreciate Property (2025)(opens in a new tab)
Appendix B reproduces the Rev. Proc. 87-56 class lives.
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