Cost Segregation Studies for Apartments
Apartments and multifamily homes may be the optimum properties for cost segregation. By their very nature, apartment complexes are loaded with short-life depreciation opportunities.
One hotbed of depreciation is in the interior of the units themselves, as they are largely composed of nothing but short-life assets. Both the grounds of an apartment complex and common areas are also rife with potential targets for depreciation.
O’Connor’s cost segregation studies will not only focus on short-life components, but will also take into account long-term components, such as the buildings themselves. All of these fall under the IRS guidelines of “units of property,” and are fair game.
Cost segregation studies of apartments are also some of the most lucrative that can be conducted. It is not unusual for an apartment study to payback at a 15-1 ratio in the first year alone. Take a look at the attached table to see how much you could get back in the first year and beyond.
Sample Study Results
| Depreciable Basis | Purchase price | Purchase Date | Year of Study | 1st Year Tax Savings | Year 1 Payback | Initial 5 Years Tax Savings | 5 Year Payback |
|---|---|---|---|---|---|---|---|
| $15,846,480 | $2,140,000 | Mar-22 | 2022 | $177,977 | 42:01:00 | $906,587 | 214:01:00 |
| $40,268,397 | $19,514,000 | May-22 | 2022 | $193,201 | 46:01:00 | $983,096 | 233:01:00 |
| $24,300,000 | $24,300,000 | Feb-22 | 2022 | $241,326 | 50:01:00 | $1,224,950 | 254:01:00 |
| $7,200,000 | $9,180,000 | Jun-22 | 2022 | $89,289 | 27:01:00 | $460,879 | 139:01:00 |
| $45,124,230 | $10,661,100 | Sep-22 | 2022 | $104,182 | 29:01:00 | $535,725 | 148:01:00 |
| $3,682,593 | $4,727,500 | Nov-21 | 2022 | $44,521 | 15:01 | $235,882 | 78:01:00 |
| $33,605,162 | $30,714,978 | Mar-22 | 2022 | $305,831 | 63:01:00 | $1,549,124 | 321:01:00 |
| $1,760,000 | $436,856 | Sep-22 | 2022 | $3,100 | 1:01 | $20,783 | 7:01 |
| $135,410,255 | $894,900 | Nov-23 | 2022 | $6,350 | 2:01 | $42,574 | $1,181,420 |
| $47,889,294 | $23,438,580 | Dec-23 | 2022 | $232,664 | 48:01:00 | $1,181,420 | 244:01:00 |
Results
* Results from “Catch Up” studies which allow the owner of properties purchased in previous tax years to benefit from cost segregation in the current tax year without filing amended returns.
NOTE: The above listed tax savings are based on a 39.6% tax rate for the owner.
