Apartment buildings
Cost segregation for apartment buildings
At five or more units, site work and unit finishes add up quickly: parking lots, site lighting, playgrounds, laundry rooms, dozens of appliance sets. Every apartment study is an Engineered Study.
What usually moves to 5 and 15 years
Typical range: 26–38% of depreciable basis.
- Unit appliances, flooring, cabinets and fixtures
- Parking lots, curbs, sidewalks and site drainage
- Pools, playgrounds, dog parks and site furnishings
- Exterior and parking lot lighting
- Laundry and fitness equipment
- Signage, mailboxes, security and access control
Worked example
12-unit garden apartment
In service February 2026, 37% federal bracket
| Purchase price | $1,900,000 |
| Less land | ($330,000) |
| Depreciable basis | $1,570,000 |
| Year-one depreciation, no study | $49,955 |
| Year-one depreciation, with a study | $445,166–$627,572 |
| Estimated tax savings | $146,228–$213,718 |
Illustration computed with our calculator, not a client result. Engineered Study fee from $2,400. Assumes the loss is usable this year.
Syndications and partnerships
The study runs at the property level and its deductions pass through on each partner's K-1. For limited partners, the losses are passive unless the partner qualifies as a real estate professional and materially participates, which LPs rarely do.
Bought years ago
A look-back study and Form 3115 catch up every year of missed depreciation in one return. We prepare the §481(a) calculation for your CPA.
Run your own numbers
Estimated tax savings on your 2026 return
Example property$126k – $185k
From $395k–$578k of extra depreciation, compared with $49,955 without a study.
| Depreciation | 2026 deduction | 5 years |
|---|---|---|
| No study | $49,955 | $278,318 |
| With a study, low | $445,166 | $614,155 |
| With a study, high | $627,572 | $769,157 |
Where your $1,570,000 of basis goes with a study
- 5-year items
- $423,900
- 15-year site work
- $172,700
- 27.5-year building
- $973,400
Engineered Study from $2,400
About 65× its cost in year one
- Uses 100% bonus depreciation, available for homes bought and placed in service after Jan 19, 2025.
- Long-term rental losses are passive. They offset W-2 income only with real estate professional status or the $25k allowance (phases out above $100k income). Unused losses carry forward.
- Over Express limits, so this needs an Engineered Study. Your proposal has the exact fee.
Questions
I bought my rental years ago. Is it too late?
No. A look-back study works on any rental placed in service after 1986. Your CPA files Form 3115 (an automatic change in accounting method) and takes all the missed depreciation as a single catch-up deduction in the current year. No amended returns.
The shorter-life parts use the bonus rate from the year the rental was first placed in service. A 2022 rental still gets 100%, a 2023 rental 80%.
What happens when I sell? Do I pay it all back?
Some of it. On a taxable sale, depreciation on the 5-year parts is recaptured as ordinary income, and depreciation on the building and site work is taxed at up to 25%. Recapture only applies to gain; if you sell at a loss there is nothing to recapture.
Even so, a deduction today at 32–37% that's repaid years later is usually worth more than the same deduction spread over 27.5 years. You can also defer with a 1031 exchange, and heirs receive a stepped-up basis that wipes out recapture. If you expect to sell within two years, a study may not pay off. Ask us and we'll model it.
How long does it take?
Express Studies are delivered in about 5 business days after you finish the property questionnaire. Engineered Studies take 15–20 business days after the virtual walkthrough and documents. Rush delivery is available close to filing deadlines.
Will a study get me audited?
A study doesn't trigger audits by itself. What draws scrutiny is a poor study: rule-of-thumb percentages, no documentation, contingency fees, or an unrealistically low land value. Ours document every asset, its cost basis and the rule that puts it on a shorter schedule.
If the IRS asks about your study, we answer in writing about our method and classifications at no charge. We don't represent you before the IRS. That's your CPA's or attorney's role.
Find out what your rental is worth on this year’s return
A free proposal with your estimated savings and a fixed fee, usually within one business day. Studies start at $895.