Cost Segregation for Duplexes and Multifamily Properties
Why Multifamily Properties Benefit from Cost Segregation
Duplexes, triplexes, fourplexes, and larger multifamily properties are among the best candidates for cost segregation studies. These properties have higher depreciable bases than single-family rentals, more building components per property, and often include shared infrastructure that qualifies for accelerated depreciation.
A fourplex with a $700,000 depreciable basis, for example, might have $175,000 to $245,000 in components reclassified to 5-year, 7-year, and 15-year property. Combined with bonus depreciation, that can generate first-year deductions exceeding $150,000, dramatically reducing the owner's tax liability.
Components Unique to Multifamily Properties
Multifamily properties contain all the same reclassifiable components as single-family rentals, multiplied across each unit. Appliances, flooring, cabinetry, and fixtures in every unit qualify for 5-year or 7-year depreciation. But multifamily properties also include shared components that add to the reclassification total.
Common areas such as lobbies, hallways, and laundry rooms contain lighting, flooring, and fixtures that qualify for shorter depreciation. Parking lots, shared driveways, exterior lighting, fencing, and landscaping for the entire property fall into 15-year land improvement categories. Intercom systems, security cameras, and fire suppression components that serve specific equipment may also qualify.
The result is that multifamily properties typically see 25 to 35 percent of the depreciable basis reclassified, a higher absolute dollar amount than most single-family rentals.
House Hacking and Cost Segregation
Many investors start their multifamily journey by house hacking, living in one unit of a duplex or triplex while renting out the others. In this scenario, cost segregation still applies to the rental portion of the property. The study allocates components proportionally between the owner-occupied unit and the rental units.
For a duplex where the owner lives in one unit and rents the other, approximately 50% of the reclassified components generate depreciation deductions. While the deduction is smaller than a fully rented property, it still provides meaningful tax savings and can be combined with the STR exception if the owner converts their unit to a short-term rental.
Scaling Cost Segregation Across a Multifamily Portfolio
Investors who own multiple multifamily properties can realize significant portfolio-level tax savings through cost segregation. Each property study is independent, and the accelerated deductions compound across the portfolio. An investor with three fourplexes and a 10-unit building could potentially generate $300,000 or more in first-year accelerated depreciation.
For investors who qualify as real estate professionals or who use the STR exception to offset W-2 income, these losses become even more valuable because they can be applied against active income.
Get Started with Your Multifamily Study
Whether you own a duplex or a 50-unit apartment building, Stratum Cost Segregation has the engineering expertise to identify every reclassifiable component and deliver an audit-ready report. Our studies follow the IRS Cost Segregation Audit Techniques Guide and include detailed asset listings, depreciation schedules, and supporting documentation. Request a free estimate to see what your multifamily property could yield.