Cost Segregation on a $1.2M Rental Property: $192,000 in Accelerated Depreciation

A $1.2M single-family rental generates $192,000 in accelerated depreciation, making cost segregation a standard component of the acquisition tax strategy at this price point.

$192,000 Accelerated Depreciation

$71,040 Est. Year-1 Tax Savings

59x Return on Study Cost

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Property Type

Purchase Price

$71,040

Estimated Year-1 Tax Savings

$192,000

Accelerated Deductions

$1,195

Study Cost

59x

ROI on Study

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Estimates are for illustration only. Details

What This Means for a $1,200,000 Rental Property

$1,200,000 Rental Property property — cost segregation depreciation example

On a $1,200,000 single-family rental, the depreciable basis is approximately $960,000 (80% after land). Cost segregation reclassifies $192,000 into shorter MACRS recovery periods. The 5-year class includes cabinets, countertops, appliances, carpet, decorative lighting, and specialty fixtures. The 15-year class covers driveways, walkways, landscaping, fencing, and irrigation systems. The remaining basis stays on the standard 27.5-year schedule.

With 100% bonus depreciation permanently restored, the full $192,000 is deductible in year one, generating $71,040 in federal tax savings. The study costs $1,195 at this price tier, producing a 59x return. Results vary based on the property's age, quality of construction, and scope of renovations.

Investors purchasing SFRs above $1M are often coordinating cost segregation with broader tax planning: timing acquisitions near year-end for maximum first-year benefit, structuring entity ownership for liability and tax purposes, and evaluating Real Estate Professional qualification to remove passive loss limitations. A cost segregation study ordered at acquisition ensures the accelerated depreciation is available for the first tax filing after closing.

MACRS Depreciation Breakdown

Accelerated Depreciation by MACRS Class

$192,000 total reclassified into shorter recovery periods

5-Year Property $115,200

60%

7-Year Property $19,200

10%

15-Year Property $57,600

30%

Estimated Year-1 Tax Savings $71,040

Illustrative estimate. Final allocations vary based on property facts and report findings.

Method

Year-1 Deduction

Difference

Standard (27.5yr straight-line)

$34,909

—

With Cost Segregation + Bonus

$192,000

+$157,091

Estimated deduction based on typical cost segregation allocations for rental property properties. Actual study results may vary based on property-specific analysis including age, condition, renovations, and local construction costs.

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Why Cost Segregation Works for Rental Properties

Even unfurnished rental properties contain significant depreciable components that qualify for shorter MACRS recovery periods. Cabinetry, countertops, appliances, carpet and vinyl flooring, decorative lighting fixtures, and bathroom vanities are classified as 5-year property. Dedicated HVAC equipment, water heaters, and certain electrical systems fall into the 7-year class.

Land improvements make up the 15-year MACRS class: driveways, sidewalks, fencing, landscaping, irrigation systems, and exterior lighting. These are standard features of any rental property, yet under straight-line depreciation they would be spread over the full 27.5-year schedule.

With 100% bonus depreciation, the entire reclassified amount is deductible in year one. For long-term rental investors, the passive activity loss rules apply: deductions can offset passive rental income, and if your AGI is under $150K, up to $25K can offset ordinary income. Investors who qualify as Real Estate Professionals (750+ hours/year in real estate) can deduct without passive loss limitations.

Who This Example Applies To

Single-family rental property investors
Buy-and-hold landlords in any tax bracket above 24%
Portfolio investors looking to shelter rental income across multiple properties
Investors building toward Real Estate Professional status

Long-term rental depreciation is classified as passive. If your AGI exceeds $150K and you do not qualify as a Real Estate Professional, accelerated deductions carry forward as suspended passive losses until you generate passive income or sell the property. Actual results vary based on property age, condition, and local construction costs.

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Compare: Rental Property at Different Price Points

Price	Accelerated	Tax Savings	Study Cost	ROI
$300K	$48,000	$17,760	$795	22x
$500K	$80,000	$29,600	$795	37x
$750K	$120,000	$44,400	$795	56x
$400K	$64,000	$23,680	$795	30x
$600K	$96,000	$35,520	$795	45x
$1M	$160,000	$59,200	$1,195	50x
$250K	$40,000	$14,800	$795	19x
$550K	$88,000	$32,560	$795	41x
$900K	$144,000	$53,280	$795	67x
$1.2M	$192,000	$71,040	$1,195	59x
$1.5M	$240,000	$88,800	$1,195	74x

Frequently Asked Questions

What is a cost segregation study? ▼

A cost segregation study is an engineering-based analysis that reclassifies components of your property into shorter IRS depreciation categories (5, 7, and 15 years) instead of the default 27.5 or 39 years. This accelerates your depreciation deductions, reducing your tax bill in the early years of ownership.

Can I use cost segregation deductions against my W-2 income? ▼

For long-term rentals, depreciation deductions are generally passive and can only offset passive income. However, there are two key exceptions: (1) if your AGI is under $150K, you can deduct up to $25K in passive losses against ordinary income, and (2) if you qualify as a Real Estate Professional (750+ hours/year in real estate), all rental income becomes non-passive. STR owners who materially participate can deduct against W-2 income regardless.

How long does a cost segregation study take? ▼

Our studies are delivered in 3-5 business days. You provide the property address, purchase price, and closing date — we handle everything else using assessor records, satellite imagery, and construction cost databases. No site visit or tenant disruption required.