Cost Segregation on a $3M Multifamily (5+): $528,000 in Accelerated Depreciation

A $3M multifamily property produces $528,000 in accelerated depreciation, driven by the compounding effect of per-unit reclassification across a larger building.

$528,000 Accelerated Depreciation

$195,360 Est. Year-1 Tax Savings

78x Return on Study Cost

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Property Type

Purchase Price

$195,360

Estimated Year-1 Tax Savings

$528,000

Accelerated Deductions

$2,495

Study Cost

78x

ROI on Study

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Estimates are for illustration only. Details

What This Means for a $3,000,000 Multifamily (5+)

$3,000,000 Multifamily (5+) property — cost segregation depreciation example

At $3,000,000, a multifamily apartment building has a depreciable basis of approximately $2,400,000 (80% after land). Cost segregation reclassifies $528,000 into 5-year, 7-year, and 15-year MACRS classes. The 5-year category captures per-unit personal property (cabinets, countertops, appliances, carpet, fixtures) multiplied across every apartment. The 15-year category includes parking areas, sidewalks, fencing, landscaping, exterior lighting, and signage.

With 100% bonus depreciation, the entire $528,000 is deductible in year one, generating $195,360 in federal tax savings at the 37% bracket. The study costs $2,495, producing a 78x return. Results vary based on the building's age, construction type, unit count, and the condition of individual apartments and common areas.

At the $3M level, multifamily acquisitions are frequently structured as syndications or partnerships. The accelerated depreciation flows through to investors proportionally via Schedule K-1. Cost segregation is standard due diligence at this scale — the study is typically ordered during the acquisition process and completed before the first tax filing deadline.

MACRS Depreciation Breakdown

Accelerated Depreciation by MACRS Class

$528,000 total reclassified into shorter recovery periods

5-Year Property $264,000

50%

7-Year Property $63,360

12%

15-Year Property $200,640

38%

Estimated Year-1 Tax Savings $195,360

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

Method

Year-1 Deduction

Difference

Standard (27.5yr straight-line)

$87,273

—

With Cost Segregation + Bonus

$528,000

+$440,727

Estimated deduction based on typical cost segregation allocations for multifamily (5+) 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 Multifamily Properties

Multifamily properties (5+ units) create an exceptionally rich reclassification profile. Per-unit components multiply across every apartment: kitchens, bathrooms, flooring, lighting, and fixtures in each unit qualify for 5-year or 7-year MACRS classification. Common-area improvements add further reclassification value — lobbies, hallways, laundry facilities, fitness rooms, and management offices.

Site improvements at the multifamily scale are substantial: parking lots, walkways, retaining walls, irrigation systems, exterior lighting, signage, mailbox clusters, dumpster enclosures, and playground or pool facilities. These 15-year property components can represent 8-12% of the total depreciable basis on larger properties.

With 100% bonus depreciation, the full accelerated amount is deductible in year one. Multifamily investors typically generate enough passive rental income to absorb the accelerated depreciation without passive loss limitations. For syndicators and fund managers, cost segregation is a standard component of investor return calculations.

Who This Example Applies To

Apartment building investors (5+ units)
Multifamily syndicators and fund managers
Real Estate Professionals building or managing portfolios
Investors acquiring value-add or stabilized multifamily assets

Reclassification percentages vary based on unit count, building age, construction type, and common-area amenity level. Properties with recent renovations or extensive site improvements tend to have higher reclassification rates.

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Compare: Multifamily (5+) at Different Price Points

Price	Accelerated	Tax Savings	Study Cost	ROI
$1M	$176,000	$65,120	$1,495	44x
$5M	$880,000	$325,600	$2,495	131x
$2M	$352,000	$130,240	$1,495	87x
$3M	$528,000	$195,360	$2,495	78x
$4M	$704,000	$260,480	$2,495	104x

Compare: $3,000,000 Across Property Types

Property Type	Accelerated	Tax Savings	Study Cost	ROI
Commercial Property	$427,500	$158,175	$2,995	53x
Multifamily (5+)	$528,000	$195,360	$2,495	78x

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.

What components get reclassified in a multifamily property? ▼

Multifamily properties have per-unit components (kitchens, bathrooms, flooring, fixtures) plus common-area improvements (hallway lighting, entry systems, mailboxes, parking lots, laundry equipment, security systems). Both categories qualify for accelerated MACRS classification, making multifamily properties especially rich in reclassifiable components.

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.