Case Studies | Align Tax Consulting
Accelerating Depreciation Through Cost Segregation for a Multifamily Housing Portfolio
The Approach
A growing real estate investment firm specializing in the acquisition and operation of multifamily properties has a portfolio of mid-sized apartment complexes totaling over 600 units. The firm sought to improve after-tax cash flow to support reinvestment and attract new capital.
Align partnered with the investor's CPA firm to implement a strategic cost segregation study - a powerful tax deferral tool that reclassifies components of real estate into shorter-lived assets eligible for accelerated depreciation.
Key Findings
Eligible Assets
Align identified three recently acquired apartment complexes with a combined basis of $14 million eligible for cost seg studies.
Engineering-Based Analysis
Our team performed a detailed site inspection and review of construction blueprints, cost data, and individual asset components.
Reclassification and Tax Strategy
Align reallocated portions of the building cost (roughly 27% of total property basis) into 5-,7-,and 15-year property categories. Eligible assets included site lighting and parking lots, cabinetry, flooring, appliances, interior finishes, and landscape and fencing. Previously these assets were classified in 27.5-year depreciation.
Financial Impact
Accelerated Depreciation Year-1:
$3.78M in additional depreciation deductions across the portfolio
Federal Tax Deferral Year-1:
$1.13M in tax savings
100% Bonus Depreciation:
Investor was able to take full advantage of 100% bonus depreciation
By front-loading depreciation, our client dramatically improved their internal rate of return on each property and enhanced investor distribution.
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