Duplex Home Cost Segregation Study
Through precise categorization, the cost seg study aimed to maximize both immediate and long-term tax benefits for the property owner by accelerating depreciation rates where possible. By leveraging current tax law advantages, this approach not only optimizes tax savings but also enhances cash flow, providing substantial financial benefits for the duplex owner now and into the future.
Long-term rental property, 2 Unit residential
Total Purchase Price: $1,000,000
In Service Date: February 1, 2022
Goal: Accelerate depreciation to maximize tax savings
Total Accelerated Depreciation:
$250,000
Additional Cashflow(Year 1):
$87,500
Asset Classification Results:
MACRS Assets Life | Cost Segregation Allocation | Original Allocation | After Cost Segregation |
5 | 15% | - | $150,000 |
7 | - | - | - |
15 | 10% | - | $100,000 |
27 | 75% | $1,000,000 | $750,000 |
5-Year Assets (15% of Total)
Amount Allocated: $150,000
Description: This category covers tangible assets directly tied to property operation and decor. In this case, qualifying 5-year assets included appliances, cabinetry, window treatments, carpeting, and select lighting fixtures.
Depreciation Rate: Accelerated 5-year schedule, eligible for bonus depreciation.
Bonus Depreciation: Assuming bonus depreciation is available, the owner could deduct 100% of these costs in Year 1.
15-Year Assets (9% of Total)
Amount Allocated: $100,000
Description: Includes land improvements, such as sidewalks, landscaping, outdoor lighting, parking areas, and fencing.
Depreciation Rate: Accelerated 15-year schedule with potential eligibility for bonus depreciation.
Bonus Depreciation: Assuming eligibility, the owner may fully deduct these costs in the first year.
Remaining 27-Year Assets (75% of Total)
Amount Allocated: $750,000
Description: Consists of structural components and core building systems, including walls, roofing, floors, and HVAC.
Depreciation Rate: Standard 27-year schedule without accelerated benefits.
Federal Tax Savings: If the property qualifies for bonus depreciation, the 5-year and 15-year assets can be fully expensed in the first year. This results in a first-year accelerated depreciation of $250,000.
Cash Flow Benefit: The reduction in tax liability from accelerated depreciation improves cash flow, providing the owner with reinvestment opportunities.
Summary
This cost segregation study has enabled the property owner to accelerate depreciation on 25% of the duplex’s purchase price, significantly improving cash flow and reducing tax liabilities. By strategically reclassifying assets into shorter depreciation categories, this study offers the owner valuable financial advantages.
Explore the full tax-saving potential of your rental property with United Tax Advisors. Our expert team makes cost segregation simple, helping you capture every depreciation benefit effortlessly.
Contact United Tax Advisors today to boost your cash flow and take your investments to new heights!