Cost Segregation · Brief · Intro level
5-, 7-, and 15-year property: concrete examples by class
What actually lands in each MACRS short-life class after a cost segregation study — carpet and appliances at 5 years, office furniture at 7, parking lots and landscaping at 15 — in one reference table.
A cost segregation study ends in a sorting exercise: every component of a building lands in a MACRS class, and the class sets the recovery period. The short classes that matter are three — 5-year (most reclassified finishes, appliances, and equipment-serving systems), 7-year (furniture, fixtures, and equipment with no assigned class life), and 15-year (land improvements, plus qualified improvement property). Everything the study cannot move stays at 27.5 years (residential) or 39 years (nonresidential).
All three short classes sit inside Section 168(k)'s 20-year window, so each is eligible for bonus depreciation — 100 percent for property acquired after January 19, 2025.
The reference table
Common components by class, as typically supported in engineering-based studies. Recovery periods per the MACRS tables in Pub 946; classification is fact-specific and use-driven.
| Class | Building components | Systems and connections | Site / other |
|---|---|---|---|
| 5-year | Carpet, vinyl, and other non-permanent floor coverings; decorative and accent lighting; decorative millwork; window treatments; movable partitions | Dedicated electrical circuits and plumbing serving equipment (kitchen, laundry, medical); data and communications cabling; security systems | Appliances (refrigerators, ranges, washers); computers and POS equipment; many industry-specific assets (e.g., restaurant equipment) |
| 7-year | Built-in but non-structural cabinetry in some fact patterns | — | Office furniture, desks, shelving, file systems; equipment with no assigned class life (the MACRS default class) |
| 15-year | Qualified improvement property — most interior improvements to nonresidential buildings placed in service after the building (details) | Site utilities from the main to the building | Parking lots, curbs, sidewalks; exterior lighting poles; landscaping and irrigation; fencing, retaining walls; signage foundations |
| 27.5 / 39-year (stays put) | Structure, roof, exterior walls and windows, elevators; general HVAC, general electrical and plumbing serving the building | — | Land itself: never depreciable |
Two boundary rules do most of the work. First, use controls: the same electrical run is 39-year property if it serves general building load and 5-year property if it serves a specific piece of equipment — which is why studies allocate MEP costs rather than whole systems. Second, permanence matters: glued-down carpet qualifies at 5 years; the concrete slab under it never will. The governing framework is the Section 1245/1250 case law summarized in the IRS Cost Segregation Audit Techniques Guide, which examiners apply component by component.
Why the sorting matters
The spread between a 5-year and a 39-year life is the entire economics of cost segregation: a dollar of basis at 5 years with 100 percent bonus deducts today; the same dollar at 39 years deducts at roughly 2.6 cents annually. But the classes also drive the exit — 5- and 7-year property is Section 1245 property, whose depreciation recaptures as ordinary income on sale, a cost quantified in depreciation recapture explained. The table above is where both the benefit and the eventual bill get decided.
Frequently asked questions
- What kinds of property are 5-year versus 7-year under MACRS?
- Five-year property includes carpet and other non-permanent floor coverings, appliances, decorative lighting, computers, and equipment connections; assets in specific industry classes (like restaurant equipment) also commonly land at 5 years. Seven-year property is the default for machinery, equipment, and furniture with no assigned class life — office furniture and fixtures are the classic example. The recovery periods come from the MACRS class lives in IRS Pub 946.
- What is 15-year property in a cost segregation study?
- Fifteen-year property is mostly land improvements under MACRS asset class 00.3: parking lots, sidewalks, curbs, exterior site lighting, landscaping and irrigation, fencing, and site utilities. Qualified improvement property — most interior improvements to a nonresidential building placed in service after the building — is also 15-year property under Section 168(e)(6). Both are eligible for bonus depreciation.
- Are all these classes eligible for bonus depreciation?
- Yes. Bonus depreciation under Section 168(k) covers MACRS property with a recovery period of 20 years or less, which includes all 5-, 7-, and 15-year property. For qualified property acquired after January 19, 2025, the bonus rate is a permanent 100 percent; property acquired earlier follows the phase-down rates (80 percent for 2023, 60 percent for 2024, 40 percent for early 2025).