Cost Segregation on a $400K Rental Property: $64,000 in Accelerated Depreciation

A $400K rental property is the most common entry point for serious SFR investors — and cost segregation is where the tax advantage really kicks in.

$64,000 Accelerated Depreciation

$23,680 Est. Year-1 Tax Savings

30x Return on Study Cost

Adjust Your Numbers

Property Type

Purchase Price

$23,680

Estimated Year-1 Tax Savings

$64,000

Accelerated Deductions

$795

Study Cost

30x

ROI on Study

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Estimates are for illustration only. Details

What This Means for a $400,000 Rental Property

$400,000 Rental Property property — cost segregation depreciation example

At $400K, a single-family rental generates roughly $64K in accelerated depreciation through cost segregation — producing about $24K in first-year tax savings. The study costs $795, delivering a 30x return. This is the price point where most investors first realize that cost segregation isn't just for commercial real estate.

The typical $400K rental is a 3-bed/2-bath in a suburban growth market — think the outer suburbs of Dallas, Atlanta, Charlotte, or Nashville. These properties feature standard residential components that all qualify for accelerated depreciation: kitchen cabinets and countertops, bathroom vanities and fixtures, carpet and vinyl flooring, garage doors, irrigation systems, driveways, and landscaping.

For investors with AGI under $100K, up to $25K of the accelerated depreciation can offset W-2 income directly through the passive loss allowance. Above $150K AGI, the deductions carry forward as suspended passive losses — released when you generate passive income from this or other rentals, or fully deducted when you sell the property.

MACRS Depreciation Breakdown

Accelerated Depreciation by MACRS Class

$64,000 total reclassified into shorter recovery periods

5-Year Property $38,400

60%

7-Year Property $6,400

10%

15-Year Property $19,200

30%

Estimated Year-1 Tax Savings $23,680

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

Method

Year-1 Deduction

Difference

Standard (27.5yr straight-line)

$11,636

—

With Cost Segregation + Bonus

$64,000

+$52,364

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

Compare: $400,000 Across Property Types

Property Type	Accelerated	Tax Savings	Study Cost	ROI
Airbnb / Short-Term Rental	$96,000	$35,520	$795	45x
Rental Property	$64,000	$23,680	$795	30x

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.

Is cost segregation worth it if I only have one rental property? ▼

Yes. The economics of cost segregation are determined by the property value and your tax bracket, not the number of properties you own. A single $400K rental property typically generates $21K in first-year tax savings — more than enough to justify the $795 study cost. The deductions carry forward if they exceed your current-year passive income.