# Pellbrook Crossing financial assumptions

Fictional total investment is $3,400,000, including $650,000 of nondepreciable land, 19.1 percent of the price. Pellbrook Crossing is a one-storey neighborhood strip center in Wexley, Indiana, built in 2004 on 1.9 acres. It has 15,600 square feet in eight inline shops of 22 by 65 feet and two end caps of 32 by 65 feet, a 62-stall lot and a pylon sign at the road. All assets are acquired February 18 and placed in service May 15, 2026, with full business use. The price and amounts are educational estimates, not an appraisal, construction bids or a cost segregation study.

## Classification decisions

The center is owned by a landlord and leased to retail and service tenants. The IRS ATG says the asset class of a lessor's property is determined as if the lessee owned it (page 89, citing Treasury Regulation 1.167(a)-11(e)(3)(iii)). The example therefore uses the retail trade class, 57.0 in Publication 946, for the landlord-owned removable items and the 39-year nonresidential real property schedule for the building.

The ATG retail exhibit places an awning or canopy on 5 years only when it is a readily removable overhang or covering, and excludes a canopy that is an integral part of the building's structural shell (pages 172-183). The bolted fabric awnings over the inline shops are treated as removable coverings. The covered arcades framed into the two corner towers are part of the shell and stay in the corner towers row on 39 years.

For pylon signs the retail exhibit includes only the sign face. The poles, footings and cabinet are a separate 15-year site row, and the lit faces the landlord owns are a separate 5-year row. The stacked tenant panels belong to the tenants and carry no owner basis.

The water, sewer and gas lines from the street to the building stay on 39 years with the building, as the ATG lists them, and the rear grease interceptor stays with the restroom and plumbing row. Both are the conservative reading, and neither is split out as a land improvement.

The paving, striping, curbs, front sidewalk, planted islands, independent parking light poles, detention basin and drains are separate from the building and use the 15-year land improvement class, 00.3 in Publication 946. The masonry dumpster enclosure is freestanding, so it is a 15-year land improvement; an enclosure attached to the building would stay with the 39-year building. Natural land and ordinary permanent grading belong to land and are not an accelerated row.

Tenant fit-out is staging and has no owner basis. The salon stations, coffee counter, shelving, barber chairs and the tenants' own signs and panels are tenant property. The vacant bay shows the bare landlord shell, which is what the owner owns. The tax service and tutoring suites are second-generation space, so their removable carpet is landlord-owned and sits in the 5-year carpet row. Floor coverings in the other suites are tenant fit-out and carry no basis here.

No qualified improvement property row is used. Qualified improvement property must be an improvement made by the taxpayer to an interior portion of a building, and the ATG says qualified improvement property placed in service by a seller is not eligible used property for the buyer (page 155). The 2004 construction is bought, not built by the buyer. No section 179 treatment is assumed.

## Allocation

| Component | Basis | Recovery period |
|---|---:|---|
| Detention basin and drains | $60,000 | 15 years |
| Water, sewer and gas lines | $55,000 | 39 years |
| Parking lot and striping | $210,000 | 15 years |
| Foundations and slab | $300,000 | 39 years |
| Steel frame and roof joists | $230,000 | 39 years |
| Brick, stone and EIFS walls | $420,000 | 39 years |
| Corner towers and arcades | $120,000 | 39 years |
| Storefront glass and doors | $210,000 | 39 years |
| Demising walls and ceilings | $110,000 | 39 years |
| Suite restrooms and plumbing | $95,000 | 39 years |
| Removable suite carpet | $16,000 | 5 years |
| Rooftop heating and cooling | $170,000 | 39 years |
| Power, meters and lighting | $160,000 | 39 years |
| Sprinklers and fire riser | $85,000 | 39 years |
| Fabric storefront awnings | $32,000 | 5 years |
| Curbs and front sidewalk | $45,000 | 15 years |
| Landscape islands and beds | $35,000 | 15 years |
| Parking light poles | $30,000 | 15 years |
| Pylon sign structure | $28,000 | 15 years |
| Pylon sign faces | $14,000 | 5 years |
| Dumpster enclosure | $18,000 | 15 years |
| Roof deck and membrane | $307,000 | 39 years |
| **Total depreciable basis** | **$2,750,000** | |

Basis by class: 5 years $62,000; 15 years $426,000; building $2,262,000.

Year-one depreciation is **$524,250.00 at 100 percent bonus** and **$69,950.00 without bonus**. Short-life rates without bonus are 20 percent and 5 percent under the half-year convention. The May building deduction is 7.5/468 of basis, $36,250.00. Short-life basis is $488,000, or 17.75 percent of depreciable basis. These are deductions, not cash savings.

## Rulings and sensitivities

These alternative functions are not assumed here. If the $32,000 fabric awnings were canopies integral to the building shell, bonus year one would decrease by $31,487.18 and no-bonus year one would decrease by $5,887.18. If the $14,000 lit sign faces belonged with the 15-year pylon structure, bonus year one would be unchanged and no-bonus year one would decrease by $2,100.00. If the $18,000 dumpster enclosure were attached to the building, bonus year one would decrease by $17,711.54 and no-bonus year one would decrease by $611.54. If the $55,000 of site utility lines were instead 15-year site improvements, bonus year one would increase by $54,118.59 and no-bonus year one would increase by $1,868.59.

## Primary sources

- IRS Publication 946: https://www.irs.gov/pub/irs-pdf/p946.pdf. Table B-2 asset classes 57.0 (retail trade) and 00.3 (land improvements), and the half-year and mid-month conventions.
- IRS Cost Segregation Audit Techniques Guide, Publication 5653: https://www.irs.gov/pub/irs-pdf/p5653.pdf. Lessor and lessee treatment, printed page 89; qualified improvement property and used property, page 155; the retail exhibit on awnings, canopies and pylon signs, pages 171-183. The ATG is examination guidance, not a legal ruling for this fictional center.
- Treasury regulation 1.48-1(e): https://www.ecfr.gov/current/title-26/section-1.48-1. The building and structural-component definitions guide the functional distinctions used in this example.
- IRS Notice 2026-11: https://www.irs.gov/pub/irs-drop/n-26-11.pdf. The assumed additional first-year rate applies to qualifying assets acquired and placed in service after January 19, 2025.

No tax rate, cash-flow benefit, section 179 election or state tax treatment is illustrated.