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Apartment Owners: Accelerate Depreciation & Boost Cash Flow

Cost segregation studies deliver $100K-$500K+ in first-year tax savings for multifamily properties

Turn Your Recent Acquisition Into Immediate Tax Savings

Accelerate 30-40% of Depreciation

Reclassify building components into 5, 7, and 15-year depreciation buckets instead of 27.5 years

Massive Year 1 Cash Flow

Generate $100K-$500K+ in first-year tax savings with bonus depreciation

Retroactive Application

Apply to properties purchased in the last 3+ years and capture all missed deductions

Why Apartments Are Perfect for Cost Segregation

Multifamily properties consistently achieve 35-45% reclassification rates, making them one of the highest-ROI property types for cost segregation

High Component Density

Apartment buildings contain significantly more depreciable components than most commercial properties. Every unit has its own appliances, flooring, fixtures, and finishes - multiplied by 50, 100, or 500+ units.

A 100-unit building might have 400+ appliances, 100+ HVAC units, thousands of square feet of carpet, and hundreds of light fixtures - all qualifying for 5-year depreciation instead of 27.5 years.

Substantial Site Improvements

Multifamily properties typically sit on larger parcels with extensive site work: parking lots, sidewalks, landscaping, fencing, pools, and recreational areas.

These site improvements often represent 15-20% of total property value and qualify for 15-year depreciation. A $5M property might have $750K-$1M in site improvements alone.

Common Area Amenities

Modern apartment complexes compete on amenities: fitness centers, clubhouses, business centers, game rooms, and pool areas - each containing equipment, furniture, and specialized finishes.

Fitness equipment, laundry machines, office furniture, and pool furniture all qualify for accelerated depreciation. These amenities can add $100K-$500K in reclassified assets.

Predictable Analysis Pattern

Because apartment units are largely identical, our engineering analysis can leverage pattern recognition to classify components efficiently - reducing study time and cost while maintaining accuracy.

This efficiency means even smaller properties (50-100 units) can justify the study cost, with typical ROI ranging from 15:1 to 50:1 in the first year alone.

The Bottom Line

Apartment buildings consistently achieve 35-45% reclassification rates compared to 20-30% for typical commercial buildings. This translates to $200K-$1M+ in accelerated depreciation for properties valued at $3M-$10M.

Qualifying Property Types

Typical first-year deductions by property category

Garden-Style Apartments

$150K-$300K

Average first-year deduction

Mid-Rise Buildings

$250K-$500K

Average first-year deduction

High-Rise Buildings

$400K-$800K

Average first-year deduction

Student Housing

$200K-$450K

Average first-year deduction

Senior Living Facilities

$300K-$600K

Average first-year deduction

Affordable Housing

$180K-$350K

Average first-year deduction

Detailed Asset Categories for Multifamily Properties

Understanding what qualifies for accelerated depreciation

Common Area Assets (5-Year)

8-12%

Typical allocation of total property value

  • Carpet and vinyl flooring in hallways and clubhouse
  • Window treatments throughout common areas
  • Appliances in clubhouse kitchen
  • Decorative lighting fixtures
  • Security cameras and access control systems

Unit-Specific Assets (5-Year)

10-15%

Typical allocation of total property value

  • Refrigerators, dishwashers, ranges, microwaves
  • Unit carpet, vinyl, and laminate flooring
  • Window blinds and shades in all units
  • Bathroom vanities and medicine cabinets
  • Ceiling fans and light fixtures

Furniture & Equipment (7-Year)

3-8%

Typical allocation of total property value

  • Laundry room washers and dryers
  • Fitness center equipment
  • Office furniture and equipment
  • Clubhouse furniture
  • Pool furniture and umbrellas

Site Improvements (15-Year)

12-18%

Typical allocation of total property value

  • Parking lots and asphalt paving
  • Sidewalks and concrete pathways
  • Landscaping and irrigation systems
  • Fencing and gates
  • Pool decking and patio areas
  • Signage and monument markers

Real-World Example: 100-Unit Garden-Style Apartment

Property Details

  • Purchase Price: $8,500,000
  • Land Value: $1,700,000
  • Building Basis: $6,800,000
  • Built: 2015
  • Units: 100 (mix of 1BR and 2BR)

Cost Segregation Results

  • 5-Year Assets: $1,020,000 (15%)
  • 7-Year Assets: $476,000 (7%)
  • 15-Year Assets: $1,156,000 (17%)
  • Total Reclassified: $2,652,000 (39%)
  • First-Year Deduction: $2,652,000

Tailored Strategies by Property Type

Different apartment types require different cost segregation approaches

Garden-Style Apartments (1-3 Stories)

Key Focus Areas

  • Extensive site improvements (parking, landscaping)
  • Individual HVAC units per apartment
  • Pool and recreational facilities

Typical Results

Reclassification Rate: 35-42%

Garden-style properties often have higher land-to-building ratios and extensive exterior improvements, making 15-year site components a major driver of savings.

Mid-Rise Buildings (4-9 Stories)

Key Focus Areas

  • Elevator systems and specialized equipment
  • Centralized HVAC with unit-specific components
  • Structured parking or parking garage

Typical Results

Reclassification Rate: 30-38%

Mid-rise buildings have higher structural costs but significant value in mechanical systems, elevators, and interior finishes across multiple floors.

High-Rise Buildings (10+ Stories)

Key Focus Areas

  • Multiple elevator banks and freight elevators
  • Advanced HVAC and Building Management Systems
  • Luxury finishes and high-end amenities

Typical Results

Reclassification Rate: 28-35%

While high-rises have higher structural percentages, the sheer volume of units and amenities (rooftop decks, sky lounges, concierge areas) creates substantial reclassification opportunities.

Student Housing

Key Focus Areas

  • Furnished units with individual bedroom locks
  • Study lounges and technology centers
  • Enhanced security and access control systems

Typical Results

Reclassification Rate: 38-45%

Student housing often has the highest reclassification rates due to extensive furniture, specialized amenities (gaming rooms, study areas), and technology infrastructure.

Senior Living & Assisted Living

Key Focus Areas

  • Medical equipment and nurse call systems
  • Commercial kitchen and dining facilities
  • Therapy rooms and medical treatment areas

Typical Results

Reclassification Rate: 32-40%

Specialized medical equipment, commercial kitchen appliances, and ADA-compliant fixtures create significant opportunities for 5-year and 7-year classifications.

Acquisition vs. New Construction: Different Strategies

Your cost segregation approach depends on how you acquired the property

Acquisition (Purchased Property)

Documentation Needed

  • Purchase and Sale Agreement
  • Closing statement (HUD-1 or settlement statement)
  • Property appraisal and inspection reports
  • Property tax assessment (for land allocation)

Timing Strategy

Ideally complete the study within the first year of ownership to maximize immediate tax savings. However, you can apply retroactively using Form 3115.

Pro Tip: If you purchased a property 2-3 years ago and haven't done cost segregation, you can still capture all missed depreciation in the current tax year.

New Construction or Ground-Up Development

Documentation Needed

  • Construction contracts and change orders
  • Architectural plans and blueprints
  • Detailed cost breakdown from contractor
  • Certificate of Occupancy

Timing Strategy

Begin the study as soon as construction is complete and you receive the Certificate of Occupancy. This allows you to take maximum depreciation in the first year the property is placed in service.

Pro Tip: Work with our team during construction to track costs properly from the start, making the cost segregation analysis faster and more accurate.

Major Renovations: The Best of Both Worlds

If you purchased an existing property and completed significant renovations (over $100K), you can benefit from cost segregation on both the original acquisition cost AND the renovation expenditures.

Common renovation components that qualify:

  • Unit upgrades (new appliances, flooring, fixtures)
  • Roof replacement
  • HVAC system replacement
  • Parking lot resurfacing
  • Common area renovations

Where Apartment Owners Find the Biggest Deductions

Typical asset reclassification for multifamily properties

5-Year Property15-20%

Appliances, carpeting, fixtures, blinds

7-Year Property5-10%

Furniture, laundry equipment, office equipment

15-Year Property15-20%

Site improvements, landscaping, parking lots, fencing

27.5-Year Property45-55%

Building structure (remaining basis)

Average First-Year Deduction

$400K-$800K

For properties valued at $2M+

With 100% bonus depreciation: All reclassified assets (5, 7, 15-year) can be fully deducted in year one

Combine Cost Segregation with Other Tax Strategies

Maximize your tax savings by layering multiple strategies

45L Energy Efficient Tax Credits

$2,500-$5,000 per qualifying unit

New construction or substantially renovated units meeting energy efficiency standards qualify for federal tax credits. Combined with cost segregation, you get both immediate deductions and long-term credits.

Best For: Newly constructed properties or major renovations after 2023

1031 Exchange Planning

Maximize depreciation before exchange

Complete a cost segregation study before selling to maximize depreciation deductions. This reduces your tax basis, which can be strategic when planning your next 1031 exchange.

Best For: Properties you plan to sell within 3-5 years and exchange into larger assets

Opportunity Zone Investment

Defer capital gains + accelerate depreciation

Properties in Qualified Opportunity Zones can defer capital gains tax while simultaneously using cost segregation to accelerate depreciation on the new investment.

Best For: Properties located in designated Opportunity Zones

Historic Tax Credits

20% federal credit + accelerated depreciation

Historic rehabilitation projects qualify for 20% federal tax credits on qualified expenses, while cost segregation accelerates depreciation on the remaining components.

Best For: Pre-1936 buildings undergoing certified rehabilitation

Strategy Stacking: Real-World Example

A developer built a 120-unit apartment building in a Qualified Opportunity Zone with energy-efficient features. By combining strategies, they achieved:

  • Cost Segregation: $3.2M first-year deduction (38% reclassification)
  • 45L Credits: $300K in tax credits (120 units × $2,500)
  • Opportunity Zone: Deferred $1.5M capital gains from previous investment
  • Total Benefit: $5M+ in year-one tax savings and deferred gains

Real ROI Examples by Property Size

See exactly what cost segregation delivers for your property type

Small Property (50 Units)

Property Value

$3,500,000

Study Cost

$6,500

Assets Reclassified

$1,225,000

First-Year Deduction

$1,225,000

Tax Savings (35% rate)

$428,750

Asset Breakdown

5-Year Assets:$420,000 (12%)
7-Year Assets:$175,000 (5%)
15-Year Assets:$630,000 (18%)
Building (27.5yr):$2,275,000 (65%)

Return on Investment

Total ROI

6,596%

Cash-on-Cash Return

65.96x

Note: Tax savings calculated at 35% effective tax rate (federal + state). Your actual savings may vary based on your tax situation. All reclassified assets receive 100% bonus depreciation in year one under current tax law.

Medium Property (200 Units)

Property Value

$18,000,000

Study Cost

$12,000

Assets Reclassified

$7,200,000

First-Year Deduction

$7,200,000

Tax Savings (35% rate)

$2,520,000

Asset Breakdown

5-Year Assets:$2,700,000 (15%)
7-Year Assets:$1,440,000 (8%)
15-Year Assets:$3,060,000 (17%)
Building (27.5yr):$10,800,000 (60%)

Return on Investment

Total ROI

20,900%

Cash-on-Cash Return

210x

Note: Tax savings calculated at 35% effective tax rate (federal + state). Your actual savings may vary based on your tax situation. All reclassified assets receive 100% bonus depreciation in year one under current tax law.

Large Property (500+ Units)

Property Value

$55,000,000

Study Cost

$18,000

Assets Reclassified

$22,000,000

First-Year Deduction

$22,000,000

Tax Savings (35% rate)

$7,700,000

Asset Breakdown

5-Year Assets:$8,250,000 (15%)
7-Year Assets:$3,850,000 (7%)
15-Year Assets:$9,900,000 (18%)
Building (27.5yr):$33,000,000 (60%)

Return on Investment

Total ROI

42,678%

Cash-on-Cash Return

427.78x

Note: Tax savings calculated at 35% effective tax rate (federal + state). Your actual savings may vary based on your tax situation. All reclassified assets receive 100% bonus depreciation in year one under current tax law.

Common Mistakes Apartment Owners Make

Avoid these costly errors and maximize your tax savings

Mistake #1: Waiting Too Long

The Consequence:

Property owners who wait 5+ years miss out on capturing maximum depreciation value. The sooner you complete a cost segregation study after acquisition, the more depreciation you can accelerate.

The Solution:

Complete your study within the first year of ownership for maximum benefit.

Mistake #2: Skipping the Study for 'Small' Properties

The Consequence:

Many owners assume cost segregation only makes sense for properties over $5M. In reality, apartments valued at $1M+ typically see strong ROI with deductions of $150K-$300K.

The Solution:

Get a preliminary analysis even for properties under $2M to verify potential.

Mistake #3: Not Coordinating with Your CPA

The Consequence:

Tax strategy should be integrated. Some CPAs unfamiliar with cost segregation may resist or delay implementation, costing you valuable deductions.

The Solution:

Involve your CPA early in the process and ensure they understand Form 3115 procedures.

Mistake #4: Ignoring Renovation Components

The Consequence:

Capital improvements like unit upgrades, roof replacements, and HVAC systems qualify for cost segregation. Many owners only consider the original acquisition cost.

The Solution:

Track all capital expenditures and include them in your cost segregation analysis.

Mistake #5: Overlooking Bonus Depreciation Phase-Out

The Consequence:

With permanent 100% bonus depreciation now in effect, delaying a study no longer carries the same urgency. However, maximizing current-year deductions still provides immediate cash flow.

The Solution:

Take advantage of current tax law to maximize first-year write-offs.

Don't Leave Money on the Table

The average apartment owner who delays cost segregation loses $50K-$200K in missed depreciation deductions. Get a free preliminary analysis to see what you could be saving.

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Is Cost Segregation Right for Your Property?

Property value over $1M

Purchased or renovated in last 3 years

You have taxable income to offset

You want to accelerate cash flow

You're planning a 1031 exchange soon

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From Analysis to Tax Savings in 4-6 Weeks

1
Week 1

Property Review

Initial assessment and data collection

2
Week 2

Site Visit & Documentation

On-site engineering inspection

3
Week 3-4

Engineering Analysis

Detailed component classification

4
Week 5

IRS-Compliant Report

Comprehensive study documentation

5
Week 6

CPA Integration

Seamless tax return filing support

Frequently Asked Questions

Common questions from apartment owners

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