What qualifies in a multifamily property
Cost segregation studies on apartment buildings typically identify several categories of shorter-life assets. 5-year personal property commonly includes carpeting, certain window coverings, appliances (ranges, dishwashers, refrigerators), and decorative millwork. 7-year property may include certain fixtures and office equipment in leasing areas. 15-year land improvements include paved parking areas, sidewalks, landscaping, fencing, outdoor lighting, and swimming pools.
Together, these typically represent 15–25% of a multifamily building's depreciable basis — lower than commercial properties, but still substantial on a large complex. A $3 million depreciable basis with 20% reclassification means $600,000 in shorter-life assets, generating significant first-year acceleration when combined with bonus depreciation.
The appliance question
Appliances in apartment units often get separate attention. If appliances are included in the purchase price, they can be reclassified as 5-year personal property and benefit from accelerated depreciation and bonus. If you buy them separately, they're already 5-year property. Either way, tracking appliances separately from the building ensures you depreciate them on the correct schedule and can claim bonus depreciation on replacements.
Sizing the study for smaller properties
For smaller multifamily properties (duplexes, triplexes, small apartment buildings), a full engineered cost segregation study may not pencil out — the study cost can approach or exceed the tax savings for properties under $500,000 in depreciable basis. Alternative: use the IRS-provided Appendix B of Publication 946, which gives class lives for common building components, or consider a less expensive 'residential cost segregation' report rather than a full engineered study.
Frequently asked questions
What percentage of an apartment building gets reclassified?
Typically 15–25% for standard residential multifamily. Properties with more personal property (furnished units, on-site amenities) or significant land improvements may be toward the high end.
Are appliances in apartments depreciable separately?
Yes. Appliances are 5-year personal property and can receive bonus depreciation. They depreciate faster than the building structure.
Is cost segregation worth it for a small apartment building?
For properties with less than $500,000 in depreciable basis, a full engineered study often does not pay. Explore less expensive alternatives or wait until you own a larger property.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.