Accelerate depreciation deductions on your traditional rental properties and improve your portfolio cash flow with a professional cost segregation study.
Long-term rental investors often assume cost segregation is only for short-term rentals or large commercial properties. That is a costly misconception. A residential rental property held as a traditional long-term rental is fully eligible for a cost segregation study, and the tax benefits can be substantial.
Under standard depreciation, your rental property is depreciated over 27.5 years using the straight-line method. A cost segregation study identifies building components that qualify for 5, 7, and 15-year MACRS recovery periods, front-loading your depreciation deductions and increasing your after-tax cash flow in the early years of ownership.
For a $400,000 long-term rental property (after land allocation), a cost segregation study typically reclassifies $80,000 to $140,000 into accelerated depreciation categories. Combined with applicable bonus depreciation, this can generate first-year deductions of $60,000 to $100,000 or more, compared to roughly $14,500 under straight-line depreciation.
While long-term rental income is generally classified as passive, investors who qualify as Real Estate Professionals under IRC Section 469 can use these deductions to offset active income. Even passive investors benefit from accelerated depreciation by sheltering rental income and reducing current-year tax liability.
If you own multiple long-term rental properties, a portfolio-level cost segregation strategy can compound the benefits. By strategically timing studies across your portfolio, you can create consistent tax-deferred cash flow advantages year after year. We offer portfolio pricing for investors with three or more properties.
Stratum specializes in residential cost segregation and understands the unique aspects of long-term rental properties, including tenant improvements, common area allocations, and multi-unit residential structures.