Residential Rental Property Owners Save $200,000 Through Cost Segregation

While Cost Segregation is typically associated with commercial properties, this powerful, IRS-approved federal tax deferral strategy is also available to the owners of multifamily, residential rental properties, including apartment and condominium complexes. At CRG, we recently worked with clients who had purchased a residential building for $750,677. After reviewing their records, we determined that the property would qualify for a Cost Segregation study. We were able to reclassify 29% of the building’s short-lived assets from real to personal property, ultimately yielding approximately $200,000 of cost savings for our clients.

 Cost Segregation for Residential Rental Properties

 Typically, multifamily real property is depreciated over a period of 27.5 years, while personal property is depreciated over 5, 7, or 15 years—which means that personal property yields more substantial and immediate depreciation deductions for the owner. A Cost Segregation study unlocks this accelerated depreciation by identifying and reclassifying certain assets from real property to tangible personal property. These assets may include electrical wiring, wall and floor coverings, plumbing fixtures, and more.

In addition to multifamily residential properties, any commercial building that was placed into service after December 31, 1986 may be eligible for a Cost Segregation study. Examples of eligible buildings include:

  • Office buildings
  • Industrial and manufacturing facilities
  • Retail centers
  • Restaurants
  • Hotels
  • Medical offices
  • And many others…

It’s important to note that most commercial properties have a depreciation life of 39 years, as opposed to 27.5 years for multifamily buildings. Therefore, when performing Cost Segregation studies on multifamily residential facilities that include a retail component—as is the trend with a great deal of new construction in urban areas—the property must be divided into separate sections for the residential and commercial components.

While the optimal time to perform a study is within the first year after the building has been placed into service (in order to begin maximizing depreciation deductions as soon as possible), Cost Segregation can be conducted at any time. In order to ensure compliance with IRS regulations and optimize tax savings, studies should be performed by a qualified third party with both tax and engineering expertise, such as the team at CRG.

Have you recently purchased, built, or remodeled a commercial or multifamily residential rental building? If so, a Cost Segregation study may enable you to capture significant tax savings through accelerated depreciation deductions. Contact CRG today to schedule a consultation!