Cost Segregation on a $5M Multifamily: $880,000 in Accelerated Depreciation

A $5M multifamily apartment complex generates $880K in accelerated depreciation — enough to shelter years of rental income or offset substantial ordinary income.

$880,000 Accelerated Depreciation

$325,600 Est. Year-1 Tax Savings

131x Return on Study Cost

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Property Type

Purchase Price

$325,600

Estimated Year-1 Tax Savings

$880,000

Accelerated Deductions

$2,495

Study Cost

131x

ROI on Study

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Estimates are for illustration only. Details

What This Means for a $5,000,000 Multifamily

$5,000,000 Multifamily property — cost segregation depreciation example

At $5M, a multifamily apartment complex (typically 20-50 units) is one of the most cost-segregation-friendly investment types. The combination of per-unit components (kitchens, bathrooms, flooring, fixtures across every apartment) and common-area improvements (lobbies, hallways, parking structures, laundry facilities, fitness rooms, pools) creates an exceptionally rich pool of reclassifiable building elements. The study typically identifies $880K in accelerated depreciation.

The economics at this scale are compelling: $880K in accelerated depreciation generates approximately $326K in first-year tax savings against a study cost of $2,495. That's a 131x return. For syndicators and fund managers, cost segregation at this level is standard operating procedure — the accelerated depreciation is a key component of the investor returns they market to limited partners.

Multifamily properties also benefit from common-area site improvements that are often overlooked: parking lot paving and striping, sidewalks, retaining walls, irrigation systems, exterior lighting, signage, mailbox clusters, dumpster enclosures, and playground equipment. These 15-year property components can represent 8-12% of the total depreciable basis on their own.

MACRS Depreciation Breakdown

Accelerated Depreciation by MACRS Class

$880,000 total reclassified into shorter recovery periods

5-Year Property $440,000

50%

7-Year Property $105,600

12%

15-Year Property $334,400

38%

Estimated Year-1 Tax Savings $325,600

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

Method

Year-1 Deduction

Difference

Standard (27.5yr straight-line)

$145,455

—

With Cost Segregation + Bonus

$880,000

+$734,545

Estimated deduction based on typical cost segregation allocations for multifamily 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 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

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.

Is bonus depreciation available in 2026? ▼

Yes. The One Big Beautiful Bill Act permanently restored 100% bonus depreciation for property placed in service in 2025 and beyond. This means you can deduct the full amount of accelerated depreciation identified in your cost segregation study in year one.