Cost Segregation Study on SFH in Iowa

[Julio Gonzalez]

A cost segregation study was performed on this single family home in Iowa City, Iowa with a depreciable cost basis of $649,900. The property is 2 stories and 1,875 square feet and was constructed in 2024. The house includes high-end upgrades such as custom cabinetry, granite countertops and energy efficient appliances. The finishes include ceramic tile, modern light fixtures and luxury vinyl plank flooring.

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.

36.4% of the total depreciable basis was classified as 5-year class life. Assets identified in this study include:

• Appliances: Dishwasher, microwave, oven refrigerator
• Interior Finishes: countertops
• Furniture and Fixtures: shelving, built in cabinetry and decorative light fixtures
• Specialized Equipment: Electrical systems and specialized wiring
• HVAC controls and specialized components

63.6% of the total depreciable basis was classified as 39-year class life. Assets identified in this study include:

• Standard windows and doors
• Interior ceilings and walls
• Basic plumbing and electrical systems
• Building structural elements
• Basic HVAC components

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.

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

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

[Sean Graham]

Quote from @Matt McCurdy:

Interesting!  I've never thought to do a cost segregation study on a single family house.  What are your thoughts on the chances of 100% depreciation will be re-instated with Trump back in office?

Very good chance. Republicans blocked it passing last year so they didn’t give democrats a win before the election. Now they have the presidency, the house, and the senate so there is a very good chance it comes back around and gets passed. Plenty of them are real estate investors too!