Cost Segregation Study on SFH in South Carolina

[Julio Gonzalez]

A cost segregation study was performed on this residential property in Hilton Head Island, SC with a depreciable cost basis of $1,575,761. The property is 3 stories and 4,848 square feet and was constructed in 2001. The property consists of high-end finishes and modern amenities. It features a swimming pool, hot tub, movie theatre among other custom finishes. The exterior is fiber cement siding and the interior has granite countertops, custom cabinetry, and custom lighting.

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.

15.86% of the total depreciable basis was classified as 5-year class life. Assets identified in this study include:

• Electrical systems with specialized wiring
• Custom cabinetry and built-ins
• Specialized lighting fixtures
• Entertainment systems
• Kitchen appliances and fixtures

14.88% of the total depreciable basis was classified as 15-year class life. Assets identified in this study include:

• Irrigation system and landscaping
• Outdoor improvements and fencing
• Site utilities
• Swimming pool and equipment
• Concrete pavers and paving

69.26% of the total depreciable basis was classified as 39-year class life. Assets identified in this study include:

• Foundation and floor structure
• HVAC Systems
• Building structure
• Exterior walls and roof
• Electrical and plumbing

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 residential investment property?