Office Tax and After-Tax Cash Flow

Use this page when the question is how office tax assumptions change underwriting or sponsor economics. Use CRE Tax and After-Tax Underwriting for the cross-asset framework, and use Office Equity Waterfall and Promote Structures when tax treatment interacts with promote tiers or hold-period incentives.

Office Basis and Depreciation

Commercial office property is depreciated over 39 years using straight-line depreciation.

• land is not depreciable
• land allocation is usually based on the property tax assessment or a qualified appraisal
• office allocations commonly land in the 15% to 25% land / 75% to 85% building range, but the exact split is market- and asset-specific

Example:

• $100M acquisition
• 20% land allocation
• $5M closing costs

That produces an $85M depreciable basis and roughly $2.18M of annual depreciation.

Office Cost Segregation

Office assets typically support meaningful reclassification into shorter-lived personal property and land-improvement buckets.

• typical office / retail reclassification range: 15% to 25% of building cost
• the Year 1 tax shield can be material if the sponsor expects to hold long enough to use the deductions before sale
• the trade-off is a larger depreciation recapture bill on a taxable exit

That makes cost segregation especially useful in office when early-year tax shelter matters more than minimizing recapture later.

Office After-Tax Returns

For office, after-tax return analysis matters because the cash-flow profile is often lumpy:

• lease-up may suppress early taxable income while cash remains tight
• renewal risk and TI / LC spending make the tax shield more valuable in the first part of the hold
• a taxable sale can trigger a large recapture bill if the sponsor has accelerated deductions

Use CRE Tax and After-Tax Underwriting for the generic after-tax cash-flow framework, then layer office assumptions onto the basis, hold period, and exit tax cases.

Texas and DFW Context

For Texas office assets, the lack of a state income tax is a real after-tax advantage relative to high-tax markets.

• operating distributions face less state-level drag
• disposition gains avoid state income tax at the entity level
• the Texas advantage compounds over long holds, which is why office underwriting in Dallas, Houston, Austin, and San Antonio often looks better after tax than the same pre-tax deal in a high-tax state

Provenance

• Derived from Tax & After-Tax Cash Flow
• Bibliography preserved in Legacy Office References
• Legacy office branch preserved in Legacy Office Knowledge Wiki