Apartment Owners & Syndicators
Multifamily Cost Segregation
Apartment buildings depreciate over 27.5 years by default. A cost segregation study reclassifies 25–35% of that basis — unit finishes, appliances, site improvements — into 5- and 15-year property, front-loading tens of thousands of dollars in year-one deductions that pass directly to your investors' K-1s.
IRS-compliant · Audit-defensible · Delivered in days for $4K–$14K
See if your property qualifies
25–35% reclassified
Typical multifamily study moves 25–35% of depreciable basis from 27.5-year into 5- and 15-year property for a large first-year deduction.
K-1 passthrough to LPs
Accelerated depreciation flows through Form 1065 to every limited partner's K-1 — immediately offsetting passive income at the partner level.
Audit-defensible
Built to the IRS Cost Segregation ATG with a full component-level asset listing, recovery-period rationale, and supporting documentation.
Delivered in days
AI-assisted engineering returns an IRS-compliant study in days — not the 6–12 weeks a traditional firm requires at deal close or tax season.
Why multifamily investors use cost segregation
Residential rental property is assigned a 27.5-year straight-line life under MACRS. That's faster than commercial's 39 years — but a cost segregation study goes further. It identifies the components inside the property that the IRS recognizes as short-lived: unit appliances, flooring, cabinetry, and dedicated electrical (5-year), plus exterior paving, fencing, landscaping, and amenity improvements (15-year).
Combined with IRC §168(k) bonus depreciation, those reclassified assets produce a large deduction in the year the property is placed in service — even if you acquired it mid-year. For a syndication, that deduction flows through to each LP proportionally, offsetting passive income across their entire portfolio.
| Multifamily asset | Reclassified to |
|---|---|
| Unit appliances (range, refrigerator, dishwasher) | 5-year |
| Carpet, LVP, vinyl, and tile flooring | 5-year |
| Kitchen & bath cabinetry and millwork | 5-year |
| Window treatments, blinds & interior doors | 5-year |
| Dedicated appliance & specialty circuit wiring | 5-year |
| Exterior paving, parking lots & drive aisles | 15-year |
| Fencing, site lighting & signage | 15-year |
| Landscaping, irrigation & site improvements | 15-year |
| Pool, fitness center & amenity improvements | 15-year |
How it flows through to your limited partners
Study completed at acquisition
The cost segregation study is delivered as part of the deal close package — or within days after — so accelerated deductions are captured in the property's first tax year.
Deductions flow through Form 1065
The partnership return reflects the accelerated depreciation from reclassified 5- and 15-year assets. Each investor's K-1 shows their proportionate share.
LPs offset passive income
Limited partners use the K-1 losses against passive income from this and other qualifying investments — reducing taxable income in the year the study is placed in service.
Illustrative example
Depreciable basis
$8,500,000
Reclassified (30%)
$2,550,000
Bonus depreciation (60% — 2024 rate)
$1,530,000
Tax saving at 37% rate
~$566,000
For illustrative purposes only. Actual results depend on property type, basis, placed-in-service date, and applicable bonus depreciation rate. Consult your tax advisor.
Bonus depreciation — why the acquisition date matters
Bonus depreciation under IRC §168(k) applies to the 5- and 15-year property your study identifies. The One Big Beautiful Bill Act (enacted July 4, 2025) restored 100% bonus depreciation on a permanent basis for property acquired after January 19, 2025; IRS Notice 2026-11 confirms the acquired-date test turns on the written binding contract date, not the closing date. Property acquired on or before January 19, 2025 stays on the TCJA phase-down below — so for an apartment community the contract date, not the calendar year, decides which rate the reclassified property gets.
80%
PIS 2023
acquired ≤ Jan 19, 2025
60%
PIS 2024
acquired ≤ Jan 19, 2025
40%
PIS 2025
acquired ≤ Jan 19, 2025
100%
Acquired after Jan 19, 2025
permanent (OBBBA)
Multifamily cost segregation FAQ
How much of an apartment building can be reclassified through cost segregation?
For most garden-style and mid-rise apartment buildings, 25–35% of the total depreciable basis can be reclassified out of the 27.5-year schedule into 5-year personal property (unit fixtures, appliances, flooring) and 15-year land improvements (paving, fencing, landscaping, site lighting). High-amenity Class A properties often reach the upper end of that range due to more short-life interior finishes.
How does cost segregation work for a real estate syndication?
The accelerated depreciation flows through the partnership return (Form 1065) to each investor's Schedule K-1, pro-rata with their ownership interest. A $10M apartment basis generating $3M in year-one accelerated deductions would deliver, say, $300,000 to a 10% LP — offsetting passive income from that and other qualifying investments.
Does bonus depreciation still apply to multifamily in 2024–2025?
Yes. Under IRC §168(k), bonus depreciation applies to the 5-year and 15-year property reclassified in a cost segregation study. The rate phased down after 2022 — 80% in 2023 and 60% in 2024 — but the One Big Beautiful Bill Act, enacted July 4, 2025, restored 100% bonus depreciation on a permanent basis for property acquired after January 19, 2025. IRS Notice 2026-11 provides interim guidance confirming that the acquired-date determination turns on the written binding contract date rather than the closing date. For property falling on the earlier side of that date, the phase-down rates still apply, so the acquisition date remains the decisive planning variable.
Can cost segregation be done after purchase (look-back study)?
Yes. A cost segregation study can be performed on properties acquired or constructed in prior years. A catch-up deduction is taken in the year the study is completed via a §481(a) adjustment — no amended returns required. This is sometimes called a "look-back" study and can produce a large one-time deduction even on a property held for several years.
Is the study IRS-audit defensible?
Every study ClickDrag Finance delivers is built to the IRS Cost Segregation Audit Techniques Guide (ATG). It includes a detailed component-by-component asset listing with cost basis, recovery period, and IRS classification rationale for each line item — the same documentation an IRS examiner would request. The study is engineered, not a spreadsheet estimate.
How much does a multifamily cost segregation study cost?
Studies for apartment buildings and syndications run $4,000–$14,000 — roughly 80% less than the $40,000–$70,000 a traditional engineering firm charges. Turnaround is days, not months, using AI-assisted engineering with human oversight.
Ready to accelerate your multifamily depreciation?
IRS-compliant, audit-defensible cost segregation for apartment buildings and syndications — delivered in days for a fraction of traditional cost.