Why shorter-life classes matter
A standard rental building uses 27.5- or 39-year straight-line depreciation. Components reclassified into 5-, 7-, or 15-year MACRS classes depreciate faster — and may qualify for bonus depreciation in year one. A cost segregation study has a qualified engineer identify and support each reclassification.
What falls into each class
5-year property in residential rentals typically includes carpeting, appliances, and certain electrical or plumbing components that directly serve the tenants. 7-year property includes office furniture and some fixtures. 15-year property (land improvements) covers exterior items: parking lots, sidewalks, landscaping, fences, and outdoor lighting — particularly impactful for commercial and larger residential complexes.
How much can typically be reclassified
Cost seg studies on residential rentals typically reclassify 10–30% of the total building cost into shorter-life classes; commercial buildings often see a higher percentage due to more extensive equipment and improvements. The exact amount depends on the property's construction and components. Use the cost segregation calculator for a first-pass estimate.
Frequently asked questions
What is 15-year property in a cost seg study?
Land improvements like parking lots, sidewalks, fences, and landscaping — depreciated over 15 years and potentially eligible for bonus depreciation.
How much of a building can be reclassified?
Typically 10–30% for residential rentals, more for commercial — it depends on the property's components.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.