Residential Rental Cost Segregation
Case Study
No Cost Segregation Study
Total Depreciation
$36,884
Cost Segregation Study
Total Depreciation
$384,711
5 Year Assets
15 Year Assets
37.5 Year Assets
Total Tax Benefits
$130,435
Property Type
Residential Rental
#Of Bedrooms
4
Building Cost
$1,013,373
Square Feet
7,400
Lot Size
.71
TOP DEPRECIATED ASSETS
Why is Cost Segregation Beneficial to Residential Rental Properties?
Shorter Life Assets
One of the primary benefits of cost segregation is the ability to accelerate depreciation on certain components of the property.
Instead of depreciating the entire property over 27.5 years (for residential rental properties) or 39 years (for commercial properties).
Cost segregation allows property owners to identify and depreciate specific assets over shorter recovery periods (e.g., 5, 7, or 15 years). This results in increased depreciation deductions in the earlier years of ownership, providing immediate tax benefits.
Tenant Improvements
In commercial rental properties, tenant improvements (TI) are common. Cost segregation helps differentiate between the building structure and tenant improvements, allowing property owners to depreciate TI assets over shorter periods and optimize tax benefits.
Renovations & Improvements
Residential rental properties often undergo renovations and improvements to maintain or enhance their value.
Cost segregation can be applied to identify and segregate the costs associated with these improvements, allowing for faster depreciation and immediate tax savings.
Apportionment of Costs
Cost segregation allows property owners to apportion the total cost of the property into different categories with varying recovery periods.
This can include land improvements, personal property, and the building structure, each with its own depreciation schedule, providing more flexibility in managing taxes.
Dispostion of Assets
When certain assets within the property reach the end of their useful lives, cost segregation can facilitate the proper accounting and potential write-offs associated with the disposition of these assets.
Increased Cash Flow
By accelerating depreciation, cost segregation can lead to higher depreciation deductions, reducing taxable income and increasing cash flow.
This additional cash flow can be reinvested in the property, used for improvements, or distributed to property owners and investors.