How Decorative Lighting Fixtures Can Boost Depreciation in a Cost Segregation Study

When most property owners think of cost segregation, they envision HVAC systems, flooring, or cabinetry. But there's a hidden asset class that often gets overlooked—and it can significantly boost your accelerated depreciation benefits.

Core Highlights

• Decorative lighting often qualifies as 5-year personal property, allowing for accelerated depreciation.
• Including decorative lighting in a cost segregation study can boost upfront tax deductions, improving cash flow and ROI.
• Bonus depreciation may allow a large portion to be written off in year one, maximizing savings under current tax law.

Table of Contents

• Core Highlights
• What Is Decorative Lighting?
• IRS Classification: Why It Matters
• Real-World Example: Lighting the Way to Bigger Tax Deductions
• Bonus Depreciation Opportunity
• Documentation Is Key: Avoid IRS Red Flags
• Final Thoughts

What Is Decorative Lighting?

Decorative lighting refers to lighting fixtures that are primarily aesthetic in nature. These fixtures are installed to enhance ambiance, brand image, or design appeal—not simply to meet code or provide minimum required illumination.

Examples

• Statement chandeliers in apartment lobbies
• Pendant lights above reception desks or kitchen islands
• Wall sconces in hotel corridors or spas
• LED accent lighting in high-end retail stores
• Branded exterior lighting on commercial façades

Unlike standard lighting that serves a functional purpose (like safety or visibility), decorative lighting adds value through atmosphere and design—making it potentially eligible for accelerated depreciation.

IRS Classification: Why It Matters

From a tax standpoint, the IRS separates building systems (real property) from personal property. According to IRS Publication 946 and the Asset Classification Guide:

• Standard lighting systems (e.g., overhead fixtures required for basic lighting) are depreciated over 39 years for commercial properties (or 27.5 years for residential rentals).
• Decorative or specialty lighting that is not integral to the building’s operation may be classified as §1245 personal property, depreciable over 5 or 7 years.

This reclassification is only possible through a formal cost segregation study performed by qualified professionals who understand IRS tax court precedents, construction specs, and asset classification rules.

Real-World Example: Lighting the Way to Bigger Tax Deductions

Let’s say a commercial real estate investor develops a luxury office space and installs $125,000 worth of lighting:

• $75,000 is for general ceiling lights
• $50,000 is for designer fixtures in common areas, restrooms, and offices

Through cost segregation, the $50,000 in decorative lighting may be reclassified to 5-year property, resulting in:

• Immediate bonus depreciation (60% in 2025)
• Improved first-year write-offs
• Tens of thousands in net present value (NPV) savings

Without this reclassification, that lighting would be depreciated slowly over 39 years—leaving money on the table.

Bonus Depreciation Opportunity

Thanks to the Tax Cuts and Jobs Act, many assets with a class life of 20 years or less were eligible for 100% bonus depreciation through 2022. While that bonus percentage has begun to phase down (currently 60% in 2025), it still offers powerful benefits.

If decorative lighting is correctly classified, you may be able to deduct 60% of the cost in year one, with the remainder depreciated over the next few years.

Documentation Is Key: Avoid IRS Red Flags

A lighting invoice alone isn’t enough. To defend your depreciation strategy in an audit, you'll need:

• Detailed asset descriptions in the cost segregation report
• Installation cost breakdowns
• Photographic evidence, plan markups, and purpose-of-use statements

This is why DIY cost segregation or basic accounting software often falls short—specialized documentation protects you and ensures compliance.

Final Thoughts

Decorative lighting is more than just ambiance—it’s a strategic tax-saving asset that often goes unnoticed. If you're investing in or renovating commercial or multifamily properties, don’t let this opportunity slip by.

Need help uncovering hidden tax savings in your property?
Schedule a complimentary consultation with a certified Cost Segregation Specialist today at CostSegRx.com.

“A missed cost segregation opportunity today could cost you thousands tomorrow.”