Cost Segregation Case Studies
Condo Short-Term Rental Example
The client bought a condo for $1,295,000. Land isn’t part of the condo purchase so the basis is the entire purchase price of $1,295,000.
​
If the property was depreciated over 39 years, the write-off would be $15,242 per year. Assuming a 25% tax rate, that would save them roughly $3811 in taxes per year.
​
Now, let’s compare with the cost segregation study. After completing the study, $410,515 of the $1,295,000 was eligible for bonus depreciation, so 100% of the cost could be written off in 2021. In addition, the client still receives $10,410 in items that fall in the 39 year category. The combined total of tax savings benefit is $420,925. Assuming that same 25% tax rate, this client resulted in a tax savings of $105,231. By completing the engineer-based cost segregation study, the client had an additional tax savings of $101,420 in the first year!
Single-Family House
Short-Term Rental
The client bought a single-family house for $460,000. Land isn’t depreciable so the land value is taken off the purchase price of the house. The land was estimated at $65,000 which gave a remaining depreciable value of $395,000. The client also did major renovations that equaled $88,422. The new depreciable basis was now $483,422.
​
If the property was depreciated over 39 years, the write-off would be $6,724 per year. Assuming a 22% tax rate, that would save them roughly $1480 in taxes per year.
​
Now, let’s compare with the cost segregation study. After completing the study, $122,020 of the $483,422 was eligible for bonus depreciation, so 100% of the cost could be written off in 2021. In addition, the client still receives $5,027 in items that fall in the 39 year category. The combined total of tax savings benefit is $127,048. Assuming that same 22% tax rate, this client resulted in a tax savings of $27,951. By completing the engineer-based cost segregation study, the client had an additional tax savings of $26,471 in the first year!
*results are dependent on your individual situation so please consult your CPA for tax advice
