Worked example: an $18.5 million apartment community

The property

A 184-unit garden-style community across nine three-storey buildings, built 2016, acquired 2025 for $22,400,000. Land allocated at $3,900,000, leaving $18,500,000 of depreciable basis. Clubhouse and leasing office, fitness centre, resort-style pool, dog park, 320 surface parking spaces with carports.

Owner is a syndication with a sponsor materially participating and limited partners with varying passive positions.

Without a study

$18,500,000 over 27.5 years: about $605,000 in a full year after the mid-month convention.

The reclassification

5-year property — $2,560,000. The per-unit package multiplied across 184 units: refrigerators, ranges, dishwashers, microwaves, disposals, in-unit washers and dryers, kitchen and bath cabinetry, vanities, countertops, luxury vinyl plank and carpet, blinds, decorative lighting, ceiling fans. Plus the amenity layer: clubhouse and leasing office build-out, fitness equipment, pool equipment and controls, access control and gate operators, package lockers, cameras, data and television infrastructure.

15-year land improvements — $2,210,000. Parking, drive aisles, carport paving, sidewalks, pool decking and hardscape, grilling areas, dog park, site and landscape lighting, landscaping and irrigation, fencing, retaining walls, storm drainage and detention, mail kiosk and monument signage.

27.5-year property — $13,730,000. Structures, foundations, framing, roofs, siding, windows, HVAC, plumbing risers, electrical service, stairs and corridors.

Total reclassified: $4,770,000, or 25.8% of basis.

With 100% bonus

The full $4,770,000 deductible in year one, plus roughly $500,000 on the remaining 27.5-year basis. First-year deduction approximately $5,270,000, against $605,000 without a study.

Additional first-year deduction: about $4,665,000. At a 35% blended rate across the partner group, roughly $1,630,000 of tax deferred.

The limited partner caveat

The sponsor materially participates and uses the allocated loss immediately. Limited partners face basis, at-risk and passive limits in that order. Several had suspended losses; several with other passive income used theirs in full.

The offering materials disclosed this rather than presenting the headline deduction as a universal benefit — which is the difference between a sophisticated sponsor and an optimistic one.

Fee

$14,600 for a nine-building study with full site inspection, deductible in the year incurred.