Newly constructed properties often represent a significant capital investment, making long-term planning an important consideration from the beginning of ownership. Because every component of the property is newly installed, many owners review depreciation strategies shortly after construction is completed.
A cost segregation new construction study evaluates qualifying building components and site improvements that may be assigned different depreciation recovery periods when supported by a detailed engineering-based analysis. Whether the project involves a commercial building, multifamily property, hospitality asset, or other real estate investment, owners often consider cost segregation as part of their overall property strategy.
MVO Cost Segregation provides engineering-based studies for newly constructed properties nationwide. Our clients typically see first-year returns of 10x or more on the cost of their study. Let’s examine how new construction cost segregation studies work, what factors influence the analysis, and what property owners should know when evaluating a study.
The Numbers In Practice
New construction properties are among the strongest candidates for cost segregation because detailed construction records make component identification more straightforward and every asset is newly installed. On a $1,500,000 newly constructed commercial or multifamily property, for example, it is common to reclassify 20% to 30% or more of the depreciable basis into shorter-life asset categories, particularly when site improvements and specialty systems are factored in. At current bonus depreciation rates and a 37% federal tax rate, that can translate to significant year-one federal tax savings.
| Cost Seg Example | |
| Purchase price | $1,500,000 |
| % allocated to land (not depreciable) | 15% |
| Depreciable basis | $1,275,000 |
| Reclass % | ~25% |
| Bonus depreciation eligible assets | ~$319,000 |
| Year 1 federal tax savings at a 37% tax rate | ~$118,000 |
Why Owners Evaluate Cost Segregation for New Construction
New construction projects provide property owners with a unique opportunity to evaluate depreciation planning from the start of ownership. Because the property and its improvements are newly completed, many investors review cost segregation new construction strategies shortly after a project is placed into service.
Owners commonly evaluate the strategy for several reasons:
- Significant capital investment: New construction projects often involve substantial expenditures across the building, site, and supporting infrastructure.
- Detailed construction records: Newly completed properties typically have comprehensive construction documentation that can support the study process.
- Site and amenity improvements: Parking areas, landscaping, lighting, and other exterior features are often completed alongside the primary structure.
- Long-term ownership planning: Many investors evaluate depreciation strategies as part of broader property management and portfolio growth objectives.
For many property owners, cost segregation becomes part of the overall planning process for a newly completed asset, particularly where 100% Bonus Depreciation applies to qualifying components identified in the study. Evaluating the property early in the ownership cycle can help investors better understand how different building components are classified within the broader depreciation strategy.
How a New Construction Cost Segregation Study Is Performed
A new construction cost segregation study involves reviewing the completed property to identify assets that may qualify for different depreciation recovery periods. Because the property is newly built, the study often benefits from detailed construction records and project documentation.
Construction Cost Review
The process typically begins with a review of available construction costs, project plans, and supporting documentation. These records help establish how different portions of the project were designed and completed. The Associated General Contractors of America, the voice of the US construction industry since 1918, representing more than 27,000 member firms, has long advocated for construction documentation and cost transparency standards, the same detailed project records that form the foundation of a thorough new construction cost segregation analysis.
Asset Identification
The study evaluates building components, site improvements, and other qualifying assets throughout the property. Depending on the project, this may include exterior improvements, interior finishes, amenity areas, and other property features installed during construction.
Engineering-Based Documentation
An engineering-based methodology is used to analyze and classify qualifying assets. For a detailed overview of the process, visit our How Cost Seg Works page. The final report documents the property’s components and the supporting rationale behind each classification. For additional information regarding cost segregation methodology, refer to the IRS Audit Technique Guide.
Which MVO Service Tier Applies
For commercial new construction of any type or basis, the Fully Engineered study applies, starting at $2,500. For newly constructed residential properties with a cost basis under $1 million, the Engineer Reviewed study at $895 may be available. Our founder, Andrew, personally reviews every report regardless of tier, and the IRS has accepted 100% of our studies.
Cost Segregation for New Builds and Ground-Up Construction Projects
Ground-up development projects often involve a wide range of building components, site improvements, and property features installed during a single construction cycle. Because every element of the property is newly constructed, many owners evaluate cost segregation for new builds soon after the project is completed and placed into service.
A cost segregation analysis of newly constructed property may include reviewing exterior improvements, amenity areas, parking facilities, landscaping, lighting, and interior building components. The scope of the study typically depends on the property’s design, construction details, and overall project complexity.
Cost segregation for ground-up construction projects can apply across a variety of property types, including office buildings, multifamily developments, industrial facilities, hospitality properties, and mixed-use assets. NAIOP, the Commercial Real Estate Development Association representing 21,000+ developers, owners, and investors of office, industrial, and mixed-use properties, documents through its Research Foundation that development and construction of new commercial real estate generates significant economic activity at the state and national levels, reflecting the scale of capital investment in newly constructed properties that makes depreciation planning a key part of investor strategy. Since construction records are often readily available, owners may have access to detailed project information that supports the study process.
For many developers and investors, reviewing cost segregation after construction is complete is part of a broader strategy to understand the property’s assets and long-term ownership considerations.
Factors That Influence New Construction Depreciation Cost Segregation
The scope of a new construction depreciation cost segregation analysis can vary based on the property’s design, construction details, and overall project complexity. Understanding these factors helps property owners determine what may be included in the review.
Key considerations often include:
- Property type: Office buildings, multifamily developments, industrial facilities, hotels, and mixed-use projects each contain different asset types and construction features.
- Project size: Larger developments typically involve more building components, amenities, and site improvements that may be evaluated.
- Amenity packages: Fitness centers, clubhouses, outdoor gathering spaces, and other amenities can contribute additional assets to the analysis.
- Site improvements: Parking lots, sidewalks, landscaping, retaining walls, and exterior lighting are commonly reviewed as part of newly constructed properties.
- Construction complexity: Unique architectural features, specialized building systems, and phased development projects may increase the scope of the study.
For many owners, understanding these project-specific factors helps establish the framework for a detailed cost segregation review.
Why Property Owners Choose MVO Cost Segregation
Selecting the right provider is an important part of any cost segregation project, particularly for newly constructed properties where detailed construction records, project costs, and asset classifications play a significant role in the analysis. Many owners look for a firm that combines technical expertise with experience across a wide range of property types.
Engineering-Based Studies
MVO Cost Segregation performs engineering-based studies designed to support accurate asset classification and comprehensive documentation. This methodology allows newly constructed properties to be evaluated based on their specific construction details and project characteristics.
Experience With New Construction Projects
New construction projects often involve multiple asset categories, site improvements, and amenity packages completed during a single development cycle. MVO works with property owners across commercial, multifamily, industrial, hospitality, and mixed-use projects, applying a consistent methodology to each study.
Reporting And Documentation
A quality study depends on both the analysis and the supporting documentation. MVO’s reporting process is designed to provide clear classifications and detailed support for the assets included within the final report. The IRS has accepted 100% of MVO’s studies due to the firm’s engineering-based methodology and reporting standards.
Long-Term Investor Focus
Many owners evaluate cost segregation as part of a broader property investment strategy. The Urban Land Institute, the oldest and largest network of cross-disciplinary real estate and land use experts in the world, covers new development planning, asset lifecycle management, and investment strategy across all property types — areas that directly intersect with the ownership and development context in which cost segregation decisions are made. Our clients typically see first-year returns of 10x or more on the cost of their study, making cost segregation a strategy many investors review when planning future acquisitions, improvements, and long-term ownership goals. Use our Estimate Your Savings tool to get a projection for your property.
For property owners evaluating a new construction cost segregation study, MVO combines technical expertise with a process designed to support informed real estate decisions. Visit Our Services page for a full overview.
Frequently Asked Questions About Cost Segregation New Construction
What is a cost segregation new construction study?
A cost segregation new construction study is an engineering-based analysis that reviews a newly completed property to identify qualifying assets that may be assigned depreciation recovery periods different from those of the primary structure.
When should a new construction property owner consider a study?
Many owners evaluate cost segregation shortly after construction is completed and the property is placed into service. Newly constructed properties often have detailed project records that can support the analysis. With 100% bonus depreciation now permanently restored under current law for qualifying assets placed in service after January 19, 2025, acting early in the ownership cycle maximizes year-one savings potential.
What types of properties can use cost segregation for new builds?
Cost segregation for new construction may be considered for office buildings, multifamily developments, industrial facilities, hospitality properties, mixed-use projects, and other qualifying real estate investments.
What is reviewed during a new construction cost segregation study?
The study may review building components, site improvements, amenity areas, interior finishes, parking facilities, landscaping, and other assets installed during construction.
Does cost segregation apply to ground-up construction projects?
Yes. Cost segregation analyses for ground-up construction are commonly performed for newly developed properties after construction is complete and the asset is placed into service.
Can a newly constructed property qualify even if no renovations have been completed?
Yes. A cost segregation analysis of newly constructed properties focuses on assets installed during the original construction, so post-construction renovations are not required.
What factors influence a new construction depreciation cost segregation study?
Property type, project size, amenity packages, site improvements, and overall construction complexity can all affect the scope of the analysis.
How long does a new construction cost segregation study take?
The timeline depends on the property’s size, complexity, and available documentation. Commercial new construction studies typically follow our Fully Engineered process and are delivered within 3 to 4 weeks. Qualifying residential new construction studies through our Engineer Reviewed tier are returned within 3 to 5 business days.
Why do investors use cost segregation for newly constructed properties?
Many investors evaluate cost segregation as part of broader property planning, asset management, and long-term ownership strategies. New construction is especially well-suited for cost segregation because detailed construction records are readily available and every building component is newly installed, making accurate classification straightforward.
What should property owners look for in a cost segregation provider?
Many owners look for engineering-based studies, detailed documentation, industry experience, and a provider with a proven methodology across multiple property types.