An example warehouse study, estimated

The property

The building modeled below is a representative example, not a client result. We use it because the proportions are typical of the distribution assets owners ask us about, and because it shows how the math behaves at scale.

Assume a single-tenant distribution building that changed hands for $8.0M and encloses 150,000 SF under roof on a paved industrial parcel. After allocating purchase price between land and improvements, the depreciable basis comes to roughly $6,800,000. Industrial land allocations tend to run lower than retail or multifamily on a percentage basis, so more of the price sits inside the depreciable shell to begin with. The figures here are illustrative; a real study replaces every estimate with documented, component-level detail tied to your closing statement and to what actually reclassifies in a warehouse.

The reclassification

An engineering-based study separates the components of that $6,800,000 basis that depreciate faster than the 39-year commercial shell. The percentages below are engineering estimates for this representative asset; your own building's mix depends on what is actually on site.

• Land improvements (15-year): roughly $850,000. On a distribution site this is dominated by the truck court and trailer parking, asphalt and concrete paving, site drainage, fencing, and yard and pole lighting. Industrial parcels carry far more of this than a typical office building does.
• Personal property (5- and 7-year): roughly $360,000. This covers items such as dedicated electrical drops to equipment, process-related HVAC, dock levelers and seals, and other components classified under the asset categories described in IRS Pub 946 and the cost-segregation guidance in Pub 5653.

Together those carve-outs total about $1,210,000 — roughly 18% of the depreciable basis reclassified out of the 39-year line. Eighteen percent is a measured, defensible figure for a distribution building of this kind; we would rather model it honestly than chase a headline number.

The modeled year-1 figure

The reclassification above is an engineering result — it describes which components belong in which recovery class, and it does not change with your tax situation. The year-1 figure is different: it is a modeled tax estimate, and it moves with several inputs that are specific to you.

For this representative asset, with a placed-in-service date that qualifies for 100% bonus depreciation, the reclassified 5-, 7-, and 15-year pools become eligible for first-year expensing. Adding the ordinary first-year recovery on the remaining 39-year shell, the modeled first-year depreciation comes to about $1,240,000. Treat that as an estimate, not a promise — the actual amount depends on the bonus rate for your placed-in-service date.

That rate is not a single number. Bonus depreciation follows the date the property is placed in service, and 2025 is a split year: assets placed in service from January 1 through January 19, 2025 fall under a 40% rate, while those placed in service on or after January 20, 2025 qualify for 100%. There is no flat "100% for all of 2025." Our bonus depreciation by placed-in-service year guide lays out the schedule so you can see which rate applies to your acquisition.

Why the leverage matters here

Warehouse owners sometimes assume that a single-digit-to-high-teens reclassification percentage is too modest to bother with. The square footage is what closes that gap. A reclassification rate is only half the calculation; the other half is the basis it applies to, and distribution buildings carry large depreciable bases relative to their tenant-improvement complexity.

That is the leverage. The same 18% applied to a $1M property produces a fraction of the dollars it produces here — on this $6,800,000 basis it is roughly $1,210,000 moved into faster recovery. A lower percentage of a very large basis is still a large absolute number, which is precisely why warehouse and distribution assets are worth studying even when the headline percentage sits at the lower end of the range. The acreage that makes a logistics site useful — the paved yard, the truck court, the dock line — is also what makes the study worthwhile.

What changes the numbers

No two distribution buildings model the same way. On the engineering side, the reclassification mix shifts with the dock count, the size of the truck court and trailer yard, the power and EV-charging build-out, and how much of the site improvement work is captured on the parcel. It also depends on a question that matters more in industrial than almost anywhere else: which equipment is yours. A study only reclassifies the owner's basis, so owner-owned racking, conveyors, and material-handling systems behave very differently from tenant-installed equipment, which never enters your depreciation schedule at all.

On the tax side, the modeled year-1 figure moves with the bonus rate for the placed-in-service date, any §481(a) catch-up if you are looking back to a prior-year acquisition, the passive activity rules under §469, state conformity (several states do not follow federal bonus), and your entity structure and how income is allocated. If the property came through a 1031 exchange, carryover basis is modeled separately and changes the arithmetic again.

Those are the variables a real study resolves with documentation rather than ranges. When you are ready to move from this representative example to your own building, you can start an estimate with the property type prefilled.

Estimate your own building with the cost segregation calculator, or see a sample report at Cost Seg Smart.