Cost segregation isn’t just for commercial towers and industrial parks. One of the most rewarding parts of this work is showing smaller investors — the ones who’ve scraped together enough to buy their first or second income property — that the same powerful tax strategies available to institutional real estate are available to them, too.
This 2-story fourplex in Provo, Utah is a perfect example. At 3,736 square feet, it’s about as modest as investment real estate gets. But modest doesn’t mean the IRS treats it differently — and in 2017, our engineering team found exactly what we expected to find: real, meaningful cost segregation opportunity hiding in plain sight.
Over 40% of the property’s cost basis was reclassified to accelerated depreciation schedules. The 5-year category was particularly strong at 25.6% — appliances, carpeting, specialty fixtures, and the personal property that makes a rental unit functional. The 15-year bucket rounded out the study with site improvements that most investors would never think to separate from the building itself.
The result was life-changing in the way only small wins for first-time investors can be. The owner used the tax savings to fund the down payment on a second fourplex — set to close in 2018. That’s the compounding power of smart tax planning: one well-timed study doesn’t just save money, it funds the next deal.