Cost Segregation on a $750K Rental Property: $120,000 in Accelerated Depreciation

A $750K rental property generates $120K in accelerated depreciation — substantial enough to reshape your tax picture for multiple years.

$120,000 Accelerated Depreciation

$44,400 Est. Year-1 Tax Savings

56x Return on Study Cost

Adjust Your Numbers

Property Type

Purchase Price

$44,400

Estimated Year-1 Tax Savings

$120,000

Accelerated Deductions

$795

Study Cost

56x

ROI on Study

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Estimates are for illustration only. Details

What This Means for a $750,000 Rental Property

$750,000 Rental Property property — cost segregation depreciation example

At $750K, a single-family rental contains a significant amount of reclassifiable building components. The cost segregation study typically identifies $120K in accelerated depreciation — generating approximately $44K in year-one tax savings. These deductions can carry forward if they exceed your current-year passive income.

Properties in this price range are often in high-appreciation markets where investors prioritize long-term equity growth alongside cash flow. Markets like suburban Austin, Raleigh-Durham, or Boise attract investors paying $750K for newer SFRs with premium finishes. The newer the construction, the more detailed the component-level cost data — which actually improves the precision of the cost segregation analysis.

One strategic consideration at this price point: if you plan to hold the property for 10+ years, cost segregation gives you the full benefit of accelerated deductions upfront while the depreciation recapture tax (25% rate) doesn't come due until you sell. With proper 1031 exchange planning, you may defer that recapture indefinitely.

MACRS Depreciation Breakdown

Accelerated Depreciation by MACRS Class

$120,000 total reclassified into shorter recovery periods

5-Year Property $72,000

60%

7-Year Property $12,000

10%

15-Year Property $36,000

30%

Estimated Year-1 Tax Savings $44,400

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

Method

Year-1 Deduction

Difference

Standard (27.5yr straight-line)

$21,818

—

With Cost Segregation + Bonus

$120,000

+$98,182

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: $750,000 Across Property Types

Property Type	Accelerated	Tax Savings	Study Cost	ROI
Airbnb / Short-Term Rental	$180,000	$66,600	$795	84x
Rental Property	$120,000	$44,400	$795	56x
Fourplex	$132,000	$48,840	$995	49x

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.

What about depreciation recapture when I sell? ▼

When you sell a property, the IRS recaptures accelerated depreciation at a maximum rate of 25%. However, the time value of money strongly favors taking the deduction now: $50K in tax savings today is worth far more than paying $12,500 in recapture tax years later. Additionally, a 1031 exchange can defer recapture indefinitely.