Residential rental property
Cost segregation for rentals, from one house to a portfolio
Residential rental property depreciates over 27.5 years. The appliances, cabinets, flooring, blinds, driveway, fence and landscaping inside that number do not belong there.
What comes out of a residential rental
Less than a restaurant, more than most owners expect. Typical studies move 14% to 30% of depreciable basis off the 27.5-year schedule, with the range driven by unit count, finish level and how much money sits outside the building.
Inside the unit, the recurring 5-year package is appliances, cabinetry and vanities, countertops, carpet and luxury vinyl plank, window blinds, decorative light fixtures and ceiling fans, plus the dedicated circuits serving them. That package repeats per unit, which is why multifamily scales so well.
Outside, the 15-year land improvement category is frequently larger than owners guess: driveways and parking, walkways and patios, fencing and gates, decks, retaining walls, landscaping and irrigation, exterior lighting, pools and pool decking, outdoor kitchens, playgrounds and dog parks, and site drainage.
Where the real decision is made: can you use the loss?
The engineering is the easy part. The hard part is whether an accelerated deduction reduces this year's tax bill or waits in a suspended-loss carryforward.
— Real estate professional status under section 469(c)(7): more than 750 hours and more than half your personal service time in real property trades or businesses, plus material participation in the rental activity. Then rental losses are non-passive.
— Short-term rentals where the average customer use period is seven days or less fall outside the definition of a rental activity, so with material participation the loss is non-passive without needing REP status.
— Other passive income to absorb the loss — from other rentals, or from a business in which you do not materially participate.
If none of those describe you, the deduction is not lost. It suspends and carries forward, and it releases in full when you dispose of the activity in a fully taxable transaction. That still has value; it just is not this year's value, and you deserve to know that before you pay for a study.
The detail, if you want it
A building is residential rental property if 80% or more of its gross rental income comes from dwelling units. The test is applied annually and matters in mixed-use buildings with ground-floor retail — fall below the threshold and the whole structure moves to a 39-year life.
What doesn't count: a unit isn't a dwelling unit if more than half the units are used transiently. Hotels and true transient lodging are nonresidential, which is why our short-term rental page treats the classification carefully rather than assuming 27.5 years.
Own thirty houses across four floor plans? We build four engineering models and apply them, adjusting for actual basis, improvements and site conditions on each — so per-property cost drops sharply. Build-to-rent communities are the cleanest case: identical units, one set of construction records, shared site work.
By property type
Residential property types we study
Apartments & multifamily
Multifamily is the workhorse of cost segregation. The structure is 27.5-year property, but every unit contains a repeatable package of…
Component list →
Single-family rentals
A single rental house is the property type where owners most often assume a study is not worth it. Sometimes that is right.…
Component list →
Short-term rentals
Short-term rentals are the one residential category where the tax rules and the physical property both work in the owner's favour —…
Component list →
Student housing
Purpose-built student housing is multifamily with the amenity budget of a resort and the furniture package of a hotel. Both push the…
Component list →Mobile home parks
A park is mostly land improvements wearing a residential label. Roads, pads, utility laterals, site lighting and park-owned homes…
Component list →The study is one piece. We can handle the rest of the return.
Deprecio is part of the Shurek Accounting & Tax family of brands. If you want the study and the tax work under one roof — the return, the Form 3115, entity structure, quarterly estimates, multi-state filings — that is a single engagement, not a hand-off between two firms.
Common questions
Does cost segregation work on a small rental?
It can. With 100% bonus depreciation permanent, a $400,000 depreciable basis reclassifying 20% produces roughly $80,000 of accelerated basis. Against a modest study fee that works — provided you can actually use the deduction, which depends on your participation level and other income. We will tell you honestly on the feasibility call if the answer is no.
What is the difference between 27.5-year and 39-year property?
Residential rental property — a building where 80% or more of gross rental income comes from dwelling units — recovers over 27.5 years. Everything else nonresidential recovers over 39. Hotels and other transient lodging are nonresidential despite feeling residential, because guests are not tenants of dwelling units.
I am a passive investor. Will I actually get to use the deduction?
This is the question that matters most and the one that gets glossed over most often. Rental activity is passive by default, and passive losses offset passive income, not wages. If you have other passive income, an accelerated loss shelters it now. If you do not, the loss suspends and carries forward until you have passive income or you dispose of the property in a fully taxable transaction. Real estate professional status and the short-term rental participation rules are the two main routes around it. Full explanation here.
Can I do this on a property I converted from personal use?
Yes, with care. Basis on conversion is the lower of adjusted basis or fair market value at the conversion date, which is not the same as what you paid. The study starts from the correct converted basis and reclassifies from there. We will need the original purchase documents, records of improvements made while you lived there, and a value at conversion.
No-cost feasibility review
Find out what your building is hiding.
A feasibility review is free and takes about twenty minutes. Bring the closing statement and the depreciation schedule; we will tell you plainly whether a study pays for itself.