Multi-Family Housing Cost Segregation Study
This cost segregation study aimed to precisely identify and classify the assets within a multi-family housing property to maximize tax benefits for its owners. By reclassifying assets into shorter depreciation categories, the study not only accelerated tax savings but also unlocked significant upfront and ongoing financial benefits. This strategic approach to asset classification enabled the apartment complex owners to capitalize on optimized depreciation, improving cash flow and reinforcing the property’s financial position for future growth.
Multi-family apartment complex
Total Purchase Price (Less Land): $10,500,000
In Service Date: March 10, 2022
Goal: Maximize tax savings through accelerated depreciation
Total Accelerated Depreciation:
$2,625,000
Additional Cashflow(Year 1):
$918,750
Asset Classification Results:
MACRS Assets Life | Cost Segregation Allocation | Original Allocation | After Cost Segregation |
5 | 15% | - | $1,575,000 |
7 | - | - | - |
15 | 10% | - | $1,050,000 |
28 | 75% | $10,500,000 | $7,875,000 |
5-Year Assets (15% of Total)
Amount Allocated: $1,575,000
Description: This category includes assets directly involved in property operation, such as appliances, cabinetry, carpeting, window treatments, and select lighting fixtures.
Depreciation Rate: Accelerated 5-year schedule, with eligibility for bonus depreciation.
Bonus Depreciation: If eligible, 100% bonus depreciation could apply, allowing the owner to deduct the full amount in Year 1.
15-Year Assets (10% of Total)
Amount Allocated: $1,050,000
Description: These assets cover land improvements, including sidewalks, parking areas, outdoor lighting, landscaping, and fencing.
Depreciation Rate: Accelerated 15-year schedule, also eligible for bonus depreciation.
Bonus Depreciation: The owner may be able to fully expense these costs in Year 1 if bonus depreciation is available.
Remaining 28-Year Assets (75% of Total)
Amount Allocated: $7,875,000
Description: This category covers the primary structural components and core building systems, including the building structure, HVAC, walls, roofing, and foundations.
Depreciation Rate: Standard 28-year schedule with no accelerated depreciation benefits.
Federal Tax Savings: If the property qualifies for bonus depreciation, the 5-year and 15-year assets can be fully expensed in Year 1, resulting in $2,625,000 of accelerated depreciation in the first year.
Cash Flow Benefit: Increased cash flow from reduced tax liabilities enables the owner to reinvest in future projects, expansions, or other financial priorities.
Summary
This cost segregation study provided the property owner with accelerated depreciation benefits on 25% of the property’s basis, enhancing cash flow and reducing tax burdens. This proactive tax strategy demonstrates the substantial financial benefits for multi-family housing investments, allowing for maximized tax savings and improved cash flow, which can be reinvested to further strengthen the property’s financial performance.
The United Tax Advisors team simplifies the complexities of cost segregation, so you can see greater financial benefits from your multi-family property investments without the hassle. Start your journey to optimized tax savings today!