Cost Segregation Study on Single Family Home

[Julio Gonzalez]

A cost segregation study was performed on this single family home in West Palm Beach, FL purchased in 2023 with a depreciable cost basis of $841,850. The home is 2 stories and 2,806 square feet and was constructed in 2023. The property includes a screened-in patio and an underground pool. High efficiency appliances were utilized including HVAC, light fixtures and water heater.

The use of the accelerated depreciation strategy helps real estate investors to reduce the tax liability immediately which therefore increases their bottom line due to the offsetting of income. An additional benefit of a detailed engineering-based Cost Segregation Study is that it can increase potential insurance premium savings as well as provide support for the property tax appeals process. Additionally, it can help maximize renovations and improvements.

20.83% of the total depreciable basis was classified as 5-year class life. Assets identified in this study include:

• Appliances: Oven/range, dishwasher, refrigerator, washer/dryer, microwave
• Electrical and communication systems: TV connections and dedicated equipment outlets
• Cabinetry and Countertops
• Decorative light fixtures: Sconces, pendant fixtures, chandeliers
• Interior Finishes: Crown molding, wood panel wall covering, window treatments

8.20% of the total depreciable basis was classified as 15-year class life. Assets identified in this study include:

• Irrigation system
• Brick pavers
• Landscaping
• In-ground swimming pool
• Pool equipment
• Pool heater
• Concrete equipment pad

70.96% of the total depreciable basis was classified as 39-year class life. Assets identified in this study include:

• Building systems: water heater, electrical distribution, HVAC, plumbin
• Permanent Fixtures: windows, doors, bathroom fixtures
• Structural Components: Roof construction, drywall, wood framing
• Interior Construction: Wood flooring, stairs, ceramic tile

This engineering-based cost segregation study included the following methodology:

• Physical Inspection through a site visit
• Documentation review including architectural plans, accounting records and construction documents
• A cost analysis which utilizes engineering principles in order to allocate costs to their applicable asset classifications
• Calculation of the depreciation schedule using MACRS

As a reminder, bonus depreciation started to phase out in 2023. It’s 100% bonus depreciation for properties placed into service in 2017-2022, 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026 and completely phased out in 2027. However, there are tax code changes every year. In the H.R. 3936, Built in America Act, it was proposed to extend the 100% bonus depreciation until January 1, 2027. This has the potential to be passed later this year.

For additional questions, checkout this article on Cost Segregation FAQs.

Have you had a cost segregation study performed on your single family home?