Cost Segregation for Single-Family Rental Properties
Why Single-Family Rentals Are Ideal for Cost Segregation
Single-family rental properties are the backbone of many real estate portfolios. They are accessible, financeable, and straightforward to manage. But many single-family rental investors leave significant tax savings on the table by relying solely on standard straight-line depreciation.
A cost segregation study on a single-family rental typically identifies 20 to 30 percent of the depreciable basis that can be reclassified into shorter-lived asset categories. For a property with a $250,000 depreciable basis, that means $50,000 to $75,000 in assets moved from 27.5-year to 5-year, 7-year, or 15-year depreciation. Combined with bonus depreciation, the first-year tax impact can be substantial.
What Gets Reclassified in a Single-Family Home
A single-family rental contains dozens of components that qualify for accelerated depreciation. Five-year property typically includes carpeting, vinyl flooring, appliances (refrigerator, range, dishwasher, microwave), window treatments, decorative lighting fixtures, and certain cabinetry. Seven-year property may include furniture if the property is rented furnished, security systems, and certain office equipment.
Fifteen-year property covers land improvements such as driveways, sidewalks, patios, decks, fencing, landscaping, and exterior lighting. These items are often overlooked under standard depreciation but represent a meaningful portion of the property's value.
The engineering team at Stratum evaluates every component of your property against IRS classification guidelines to ensure nothing is missed and every reclassification is defensible.
Typical Results for Single-Family Rentals
Based on Stratum's completed studies, single-family rental properties typically see 22 to 28 percent of the depreciable basis reclassified to shorter-lived categories. On a $300,000 depreciable basis, that translates to roughly $66,000 to $84,000 in accelerated depreciation, plus any applicable bonus depreciation.
For an investor in the 32% tax bracket, a $75,000 first-year deduction from cost segregation means approximately $24,000 in tax savings, compared to roughly $3,490 from the incremental benefit of standard depreciation alone. The return on investment for the study is typically 8 to 15 times the cost.
Single-Family vs. Multifamily Cost Segregation
While multifamily properties have a higher total depreciable basis and therefore larger absolute deductions, single-family rentals often have a higher percentage of reclassifiable components relative to the total basis. This is because single-family homes tend to have more land improvements per unit (individual driveways, landscaping, fencing) and a higher proportion of personal property items like appliances and flooring.
The bottom line is that cost segregation is just as valuable for a single-family rental as it is for a larger property. The study cost is lower for smaller properties, and the ROI remains compelling.
Get a Free Estimate for Your Single-Family Rental
If you own a single-family rental property with a depreciable basis above $150,000, cost segregation almost certainly makes financial sense. Stratum's engineering-based approach ensures your study is thorough, compliant, and audit-ready. Start with a free estimate to see exactly what your property could yield in accelerated depreciation.