Single-family rentals
Cost segregation for single-family rentals
The house you rent to a long-term tenant is mostly a 27.5-year asset, but not entirely. Typically 27–38% of its depreciable basis belongs on 5- and 15-year schedules.
What usually moves to 5 and 15 years
Typical range: 27–38% of depreciable basis.
- Appliances, carpet and vinyl plank flooring
- Cabinets, countertops and vanities
- Light fixtures, ceiling fans and dedicated appliance circuits
- Window blinds and decorative trim
- Driveway, walkways, patio and fencing
- Landscaping, irrigation, retaining walls and exterior lighting
Worked example
Suburban 3-bed rental
In service August 2026, 32% federal bracket
| Purchase price | $425,000 |
| Less land | ($85,000) |
| Depreciable basis | $340,000 |
| Year-one depreciation, no study | $4,636 |
| Year-one depreciation, with a study | $95,185–$132,075 |
| Estimated tax savings | $28,975–$40,780 |
Illustration computed with our calculator, not a client result. Express Study fee from $895. Assumes the loss is usable this year.
When long-term rental losses help
Losses from a long-term rental are passive. They offset other rental profits right away. They offset wages if you or your spouse qualify as a real estate professional, or under the $25,000 allowance if your income is under $100,000 to $150,000. Otherwise they carry forward until you have passive income or sell.
Planning on real estate professional status?
Do the study in the year you qualify. Or do it now and let the carried-forward loss wait. Either way the deduction is preserved.
Converted your old home?
Basis is the lower of your adjusted cost or the market value when you moved out, and depreciation starts then. Selling within the home-sale exclusion window still means paying tax on depreciation taken after the conversion, so plan the timing.
Run your own numbers
Estimated tax savings on your 2026 return
Example property$29k – $41k
From $91k–$127k of extra depreciation, compared with $4,636 without a study.
| Depreciation | 2026 deduction | 5 years |
|---|---|---|
| No study | $4,636 | $54,091 |
| With a study, low | $95,185 | $131,286 |
| With a study, high | $132,075 | $162,736 |
Where your $340,000 of basis goes with a study
- 5-year items
- $78,200
- 15-year site work
- $51,000
- 27.5-year building
- $210,800
Express Study from $895
About 39× 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.
Questions
Is a study worth it on a smaller rental?
Usually, yes, once the depreciable basis (price minus land, plus improvements) is above about $150,000 and you can use the losses this year or soon. A $300,000 house with $60,000 of land often produces $60,000–$90,000 of extra first-year depreciation.
It's often not worth it if you plan to sell within a year or two, if land is most of the value, or if you're in a low bracket with no way to use the losses. The calculator shows the trade-off, and we'll tell you if the fee doesn't pay for itself.
Can these losses offset my W-2 income?
Not automatically. Rental losses are passive by default, so they offset passive income first and carry forward if unused. There are three ways to use them against wages.
First, the short-term rental route: if the average guest stay is 7 days or less and you materially participate (commonly 100+ hours and more than anyone else, cleaners included), the activity is not treated as passive.
Second, real estate professional status: more than 750 hours a year and more than half your working time in real estate, plus material participation in the rentals.
Third, the $25,000 allowance for active landlords, which phases out between $100,000 and $150,000 of modified adjusted gross income. Your CPA decides which applies to you.
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.
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.