Single-Family Home Cost Segregation Study
The goal of this cost segregation study was to meticulously identify and categorize the property's assets to optimize tax benefits for the Airbnb owner. By accurately classifying each component, the study aimed to accelerate depreciation deductions, providing immediate and long-term financial advantages under current tax laws.
Through detailed analysis, we were able to reclassify portions of the property into shorter depreciation schedules of 5 and 15 years. This frontloaded deductions, reducing the owners' taxable income and annual IRS payments in the critical early years of operating this short-term rental.
Short-term rental, 4-bedroom residence
Total Purchase Price: $1,500,000
In Service Date: June 21, 2022
Goal: Accelerate depreciation to maximize tax savings
Total Accelerated Depreciation:
$375,000
Additional Cashflow(Year 1):
$138,750
Asset Classification Results:
MACRS Assets Life | Cost Segregation Allocation | Original Allocation | After Cost Segregation |
5 | 16% | - | $240,000 |
7 | - | - | - |
15 | 9% | - | $135,000 |
39 | 75% | $1,500,000 | $1,125,000 |
5-Year Assets (16% of Total)
Amount Allocated: $240,000
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, with potential 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: $135,000
Description: These assets consist of land improvements, such as sidewalks, outdoor lighting, parking areas, landscaping, and fencing.
Depreciation Rate: Accelerated 15-year schedule with potential eligibility for bonus depreciation.
Bonus Depreciation: The owner could take a 100% deduction on these assets in the first year if bonus depreciation applies.
Remaining 39-Year Assets (75% of Total)
Amount Allocated: $1,125,000
Description: The bulk of the property, primarily structural components and core building systems (walls, roofs, floors, HVAC).
Depreciation Rate: Standard 39-year schedule without accelerated benefits.
Federal Tax Savings: Assuming a 37% tax rate, the $375,000 in accelerated depreciation could yield approximately $138,750 in tax savings for Year 1 alone.
Cash Flow Benefit: Increased cash flow resulting from reduced tax liability, allowing reinvestment opportunities for the owner.
Summary
The cost segregation study allowed the property owner to accelerate depreciation on 25% of the property’s value, improving cash flow and reducing tax burdens. This strategic approach offers substantial financial benefits for short-term rental investments, maximizing tax savings and strengthening cash flow for reinvestment.
Discover the full potential of your short-term rental property with United Tax Advisors’ expert team. Our seasoned professionals simplify the cost segregation process, ensuring you maximize your depreciation benefits effortlessly. Don’t leave money on the table, let us handle the complexities while you focus on growing your investments.
Contact United Tax Advisors today to get started and watch your cash flow improve!