What Is Cost Segregation for a Fourplex?
Cost segregation is an IRS-recognized depreciation method that separates the components of your fourplex into shorter recovery categories under the Modified Accelerated Cost Recovery System (MACRS). Instead of depreciating the entire building over 27.5 years, a cost segregation study identifies the portions that qualify for 5-year, 7-year, and 15-year depreciation, allowing you to deduct them far sooner.
A fourplex sits at a unique intersection in the tax code. With four units, it is the largest residential property that still qualifies for conventional residential financing, yet it contains enough duplicated systems to generate significant accelerated deductions. Four kitchens, four bathrooms, four sets of flooring, and shared infrastructure like parking lots, laundry rooms, and exterior improvements create a deep pool of reclassifiable components.
Under 100% bonus depreciation, which was permanently restored by the One Big Beautiful Bill Act for 2025 and beyond, all reclassified components can be deducted in the year of purchase. On a $600K-$800K fourplex, this routinely produces $40,000-$70,000+ in first-year depreciation deductions. That is a meaningful reduction in taxable income, whether applied against rental income or, for qualifying investors, against W-2 and business income.
Fourplex Components That Qualify for Accelerated Depreciation
The reclassification potential of a fourplex is driven by the repetition of unit-level assets and the shared building infrastructure:
5-Year Property: Per-unit appliances (four sets of refrigerators, stoves, dishwashers), carpeting and vinyl flooring in each unit, cabinetry and countertops, bathroom vanities, window treatments, interior lighting, ceiling fans, in-unit laundry hookups, and individual HVAC components like thermostats and mini-splits. Furnished units add furniture, mattresses, linens, and electronics.
7-Year Property: Common-area furnishings, built-in shelving, specialty plumbing, mailbox assemblies, security camera systems, and intercom units.
15-Year Property: Parking lots and striping, concrete driveways, sidewalks, exterior stairways, retaining walls, perimeter fencing, landscaping and irrigation, exterior lighting (pole lights, wall packs), storm water drainage, and dumpster pads. Fourplexes with dedicated parking areas often have 10-15% of their basis in 15-year land improvements alone.
In aggregate, 28-35% of a fourplex's depreciable basis typically qualifies for accelerated schedules. Older buildings (pre-1990) and properties with updated interiors or significant site work tend toward the upper end. Review what percentage to expect based on property type and age.
Why Fourplex Owners Order Cost Segregation Studies
Maximum residential reclassification. A fourplex is the largest property that still uses the 27.5-year residential schedule and qualifies for conventional lending. With four full unit interiors plus shared systems, the absolute dollar amount of reclassifiable components is typically the highest of any small residential investment property.
Strong ROI on the study cost. At $995 for a fourplex study, investors routinely see 8x-15x returns in first-year tax savings. A $700K fourplex with $45,000 in accelerated deductions produces roughly $16,650 in tax savings at a 37% bracket, a 16x return on the study fee.
Ideal for BRRRR and house-hack strategies. Many fourplex investors use the house-hack approach, living in one unit while renting three. Cost segregation applies to the rental portion (75% of the property), generating substantial deductions even when one unit is owner-occupied. BRRRR investors who renovate and refinance can layer cost seg deductions on top of their rehab strategy.
Lookback studies for existing owners. If you already own a fourplex and never performed a cost segregation study, you can claim all cumulative missed accelerated depreciation in a single year by filing Form 3115. No amended returns, no penalties. See our $750K fourplex example for a complete depreciation breakdown.
