As data usage grows and technology demands continue to expand, data centers are becoming an essential part of modern infrastructure. Whether you’re building a new facility, upgrading an existing one, or managing a portfolio of edge computing sites, there’s a big opportunity here that many businesses are missing—cost segregation.
If you own or develop data center properties, a cost segregation study can help you uncover significant tax savings. By identifying short-life assets within your facility, you can accelerate depreciation and improve cash flow in the early years of your investment.
Let’s break down how it works and why it’s especially relevant for data centers right now.
What Makes Data Centers a Great Fit for Cost Segregation?
Unlike traditional commercial buildings, data centers are packed with specialized systems and technology. These properties require massive amounts of electricity, advanced climate control, high-end security, and redundant power—all of which translate into components that depreciate faster than standard building structures.
Instead of depreciating the entire facility over 39 years, a cost segregation study allows you to break out components like electrical, HVAC, and data infrastructure and place them in 5-, 7-, or 15-year categories. That means you can take advantage of accelerated depreciation and, if eligible, bonus depreciation as well.
Examples of Assets We Typically Reclassify
Every data center is different, but here are some common assets we regularly reclassify into shorter depreciation lives:
- Server racks and cabinets
- Uninterruptible power supplies (UPS) and battery systems
- Cooling systems like CRAC and CRAH units
- Raised access flooring
- Generators and backup power systems
- Specialized lighting and fire suppression systems
- Data cabling, conduit, and power distribution units
- Site improvements like security fencing, paving, and fiber conduit
These items often make up a significant portion of the overall project cost, and the tax savings from reclassifying them can be substantial.
Real-Life Scenario: What This Could Look Like
Let’s say a company builds a $6 million data center. Through a detailed cost segregation study, we identify $3.6 million in assets that qualify for 5- or 15-year depreciation. In 2025, bonus depreciation is still available at 60 percent. That means the company could take a $2.16 million deduction in year one. Not only does this reduce their tax liability, but it also puts real cash back into the business that can be used for growth, hiring, or additional investment.
IRS Compliance and What to Expect
The IRS fully supports cost segregation when done correctly. That’s why we always use engineering-based studies that are detailed, accurate, and designed to hold up under audit. We follow IRS guidelines and MACRS depreciation rules to make sure your study is defensible and beneficial.
Even if your data center has already been in service for a few years, it may not be too late. We can perform a lookback study and help you catch up on missed depreciation with no need to amend prior returns.
Who Should Consider This?
We’re seeing strong benefits for a wide range of clients in the data space, including:
- Companies building or expanding enterprise data centers
- Real estate developers focused on tech-driven properties
- Colocation facilities and multi-tenant data centers
- Telecom and 5G infrastructure providers
- Health systems and universities with private networks
- Municipalities investing in digital infrastructure
If you’re managing a project with a heavy investment in power, cooling, and technology, there’s a strong chance a cost segregation study will uncover tax savings you haven’t yet claimed.
