Whether building a new store, renovating an existing property, or refreshing a familiar location, retailers invest heavily in creating physical environments that enhance the customer experience and drive sales. These investments can expand beyond a single site to portfolios of dozens or even hundreds of properties, each one expected to carry the brand in a consistent way.
The right tax analysis can turn routine capital spending into a meaningful source of working capital. Without proactive planning, retailers may miss opportunities to accelerate deductions, reduce taxable income, and improve after-tax cash flow. A coordinated tax strategy can change that, starting with cost segregation and extending to bonus depreciation, repairs and maintenance analysis, energy incentives, and accounting method changes. These approaches can help retailers better align tax deductions with the economic reality of their property investments, providing a broader framework for evaluating retail property investments across the entire life of a project. This article will explore potential strategies for retailers.
How Can Cost Segregation Help?
Cost segregation is an engineering-based tax study that identifies building components that may be depreciated over shorter periods than the standard 39-year period for nonresidential real property. Instead of treating a whole retail facility as one long-lived asset, the study separates qualifying components into categories such as five-year or seven-year personal property, 15-year land improvements, and 15-year qualified improvement property, where applicable. For retail properties, these shorter-life assets may include parking areas, landscaping, exterior signage, and other site improvements, as well as decorative lighting, specialized electrical systems, customer-facing specialty finishes, millwork and display systems, point-of-sale infrastructure, and merchandising elements. Together, these pieces build the environment that carries a customer from arrival to purchase with a consistent brand feel.
In many retail projects, those assets can represent a meaningful portion of the total project cost, creating an opportunity—through cost segregation and, where applicable, bonus depreciation—to accelerate deductions into earlier tax years. With 100% bonus depreciation available for qualifying property under current law, the impact on cash flow can be significant.
Looking Beyond Depreciation Timing
Cost segregation and bonus depreciation focus on accelerating depreciation, but retail projects often offer more than depreciation timing. A repairs and maintenance analysis can help identify costs that may be currently deductible under the tangible property regulations, further enhancing near-term cash flow. Remodel and refresh cycles are common in retail, creating opportunities not only for repairs and maintenance treatment but also for partial disposition treatment, including the identification of retired or abandoned assets.
Section 179D: A Deduction Tied to Square Footage
Section 179D provides a federal tax deduction for energy-efficient commercial buildings based on the square footage of a qualifying property, making it particularly valuable for larger retail facilities and portfolio-wide projects. Retail properties that may benefit include big-box stores, grocery stores, shopping centers, malls, restaurants, distribution centers, and warehouse fulfillment facilities. The deduction may also apply when a new construction, remodel, refresh, or retrofit project incorporates qualifying improvements to interior lighting, HVAC and hot water systems, or the building envelope.
Although Section 179D terminates for projects where construction begins after June 30, 2026, retailers that have invested in energy-efficient improvements over the past several years may still have meaningful cash flow recovery opportunities for projects that were never evaluated.
Like cost segregation, bonus depreciation, and repairs and maintenance analyses, Section 179D opportunities are not limited to current-year projects. These studies can often be performed retroactively, allowing retailers to identify previously overlooked deductions under the rules in effect when earlier projects were placed in service.
Growth Through Acquisition
These same principles also apply to retailers pursuing growth through acquisitions. Acquired properties often present significant opportunities to accelerate deductions, strengthen after-tax cash flow, and improve the return on a real estate investment. Using an engineering-based methodology, our professionals can allocate the depreciable basis of the property among the building, site improvements, and tangible personal property, identifying assets that may qualify for accelerated depreciation and, where applicable, bonus depreciation. Even when original construction documentation is limited or unavailable, engineering-based analyses can often uncover tax-saving opportunities that might otherwise be missed.
Do You Choose One Project or a Whole Portfolio?
The value of these strategies can increase when applied across both single-location projects and multisite portfolios. While one construction project, acquisition, or remodel may generate meaningful tax savings, a coordinated approach across multiple locations can create a repeatable process to help identify opportunities, document costs, support tax positions, and improve after-tax cash flow.
How Can Retailers Benefit?
Retailers can benefit from evaluating tax planning opportunities at several key moments: before construction begins, during acquisition due diligence, when planning a remodel, after a project is placed in service, or retroactively through an accounting method change for prior-year properties. Earlier evaluation generally provides the greatest opportunity to capture detailed cost data, align documentation, and coordinate tax planning with construction, finance, and real estate teams.
For retailers focused on growth, modernization, and operational efficiency, cost segregation and related tax services can provide more than a one-time deduction. They can become part of a disciplined, portfolio-wide strategy for retaining cash, improving return on investment, and reinvesting in the customer experience.
How Forvis Mazars Can Help
Our Federal Tax Specialty Services cost segregation team brings together engineers, construction professionals, and CPAs with deep experience analyzing retail properties. By combining technical building experience with tax knowledge, we can help retailers identify opportunities, support compliance, and turn real estate investments into a stronger source of after-tax cash flow. If you have any questions or need assistance, please reach out to one of our professionals.