ACCELERATED DEPRECIATION CAN REDUCE TAXABLE INCOME IN THE EARLY YEARS OF OWNERSHIP.
HOW APARTMENT DEPRECIATION WORKS
Under standard IRS depreciation rules, residential rental buildings are generally depreciated over 27.5 years. That works, but it spreads deductions slowly. A cost segregation study looks deeper at the property and identifies items that may qualify as personal property or land improvements.
COMMON ASSETS REVIEWED IN AN APARTMENT STUDY
COST SEGREGATION FOR APARTMENTS AND FASTER DEDUCTIONS Cost Segregation for apartments can improve cash flow because some components may move from a 27.5-year life into 5-year, 7-year, or 15-year recovery periods. The IRS MACRS guidance lists recovery periods for different property types, including shorter lives for many rental activity assets. This matters because accelerated depreciation can reduce taxable income in the early years of ownership. For apartment investors, that extra cash may help fund repairs, reserves, debt service, or the next acquisition. Bonus depreciation may also apply to certain qualified property, depending on acquisition date, placed-in-service date, property type, and elections made with a tax professional. • Appliances, carpet, furniture, and certain fixtures • Dedicated electrical or plumbing for qualifying equipment • Parking areas, sidewalks, fencing, landscaping, and site utilities • Renovation costs, tenant improvements, and common-area assets A properly prepared apartment cost segregation study may analyze items such as: The goal is not to create deductions that do not exist. The goal is to document the right asset classifications under the tax rules.
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