Cost Segregation on a 100-Unit Apartment Community: Institutional-Scale Results

At one hundred units the cost segregation conversation changes character. The question is no longer whether to do a study or even which firm to hire on price. It is whether the methodology can withstand examination, because the dollar amounts are now large enough that the IRS may actually look.

A one hundred unit community with $12 million of depreciable basis will reclassify somewhere between $3.4 million and $4.1 million. The difference between the low end and the high end of that range is roughly $260,000 of first-year tax at a 37% rate. That gap is created entirely by methodology.

Sampling Methodology Matters at This Size

You cannot inspect one hundred units individually within any reasonable fee structure, and you do not need to. The IRS Cost Segregation Audit Techniques Guide contemplates statistical sampling, and the accepted approach on large multifamily is to inspect a representative sample of each floor plan type and extrapolate.

What makes this defensible is documentation of the sample selection. A study that inspected eight units across four floor plan types, documented the selection basis, photographed each, and reconciled the extrapolation to the total unit mix will hold up. A study that inspected two units and extrapolated to one hundred will not, and the deficiency is exactly the kind of thing an examiner looks for first.

This is the single most important thing to verify before you sign an engagement letter at this size. Ask how many units will be inspected, how they will be selected, and how the extrapolation reconciles to the rent roll unit mix.

Component Breakdown at 100 Units

Five-year personal property under IRC Sec. 168(e)(3)(B) typically runs 11% to 14% of depreciable basis. The drivers are one hundred appliance packages, one hundred kitchen and bath cabinet and countertop sets, 85,000 to 110,000 square feet of finish flooring, in-unit washers and dryers, window treatments, decorative and specialty lighting, and the dedicated branch circuits and piping serving each of those.

Common area and amenity five-year property adds another 1.5% to 3%. At one hundred units the amenity package usually includes a full clubhouse with a leasing suite, a fitness center, a resort-style pool with a heater and circulation package, a business or coworking room, package lockers, and often a pet spa. Package locker systems alone can be $80,000 of five-year property.

Seven-year property under Sec. 168(e)(3)(C)(ii) is meaningful at this scale for the first time. Leasing office furniture, workstations, conference furniture, and clubhouse furnishings across a full amenity package typically reach 1.5% to 2.5% of basis.

Fifteen-year land improvements run 14% to 18%. One hundred units means 150 to 200 parking spaces, extensive drive aisles, substantial site lighting, detention or retention infrastructure, and a full landscape and irrigation system. Carports, where present, add materially.

Worked Example: $14 Million Community

A sponsor acquires a 2012-vintage one hundred unit community for $14,000,000. Land is allocated $2,000,000, leaving $12,000,000 depreciable.

The study identifies five-year property of $1,560,000 (13%), seven-year property of $240,000 (2%), and fifteen-year land improvements of $1,920,000 (16%). Reclassified basis totals $3,720,000, or 31%. Structure retained is $8,280,000.

The $3,720,000 is deductible in year one under IRC Sec. 168(k). The 27.5-year structure contributes approximately $301,100. Total first-year depreciation is roughly $4,021,100 against $436,400 without a study. The incremental first-year deduction is $3,584,700.

For a sponsor holding 10% of the equity with limited partners holding 90%, the deduction allocates according to the partnership agreement and the Sec. 704(b) rules. Most limited partners will receive a first-year K-1 loss substantially exceeding their capital contribution, which raises basis and at-risk questions under IRC Sec. 704(d) and Sec. 465. Our syndication K-1 guide covers those limits.

Bonus Depreciation Status

The One Big Beautiful Bill Act restored one hundred percent bonus depreciation on a permanent basis for qualified property acquired and placed in service after January 19, 2025. This matters more at one hundred units than anywhere else, because the phasedown schedule that applied to 2023 through 2025 acquisitions would have left a substantial portion of a $3.7 million reclassification on multi-year schedules.

Property acquired during the phasedown years still follows the rate in effect for its placed-in-service year. If you are running a portfolio with acquisitions spanning 2023 through 2026, each property carries its own bonus rate and they do not blend. See our summary of the OBBBA bonus depreciation changes for the year-by-year detail.

Audit Posture

A $3.7 million reclassification is large enough to draw attention if the return is otherwise flagged. The defense is documentation, not conservatism. A study built from actual construction cost detail or a detailed engineering takeoff, supported by unit-level photographs, a documented sampling plan, and a clear reconciliation to the closing statement and appraisal allocation, is defensible on its merits.

What draws scrutiny is a percentage that is out of line with the property type without an explanation. If your one hundred unit garden community study reports 42% reclassification, there had better be a documented reason, because the norm is 28% to 34%.

Frequently Asked Questions

How many units get physically inspected on a 100-unit study?

A defensible study inspects a representative sample of each floor plan type, typically 6 to 12 units total, with documented selection criteria and photographs, then extrapolates to the full unit mix. Two-unit samples extrapolated to 100 units are the kind of shortcut that fails on examination.

What reclassification percentage should I expect at 100 units?

Generally 28% to 34% of depreciable basis for a garden-style community with a full amenity package. Mid-rise properties with structured parking run lower, around 24% to 28%, because the parking structure is part of the building rather than a land improvement.

Does 100 percent bonus depreciation still apply?

Yes. The One Big Beautiful Bill Act made 100 percent bonus depreciation permanent for qualified property acquired and placed in service after January 19, 2025. Properties placed in service during the 2023 to 2025 phasedown carry the bonus rate in effect for their placed-in-service year.

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