Illustrative planning example
The figures on this page are hypothetical teaching inputs, not a verified client result or prediction of savings. Depreciation, deductions, income offsets, estimated tax benefits, and realized refunds are different measures. Review the assumptions and limitations before applying the example to your property.
Residential STR Cost Segregation Worked Example
Practical guidance for business owners and residential rental investors.
Hypothetical planning example
This page is an educational worked example. It does not represent a verified AE client outcome.
Worked example: a study allocation is not a tax refund
This hypothetical example uses a rental with $500,000 of supported depreciable basis and a professionally supported $100,000 short-life allocation. It does not assume that a purchase price alone establishes either number. Acquisition dates, asset eligibility, participation and applicable loss limits remain separate requirements. These are teaching assumptions, not verified AE client results.
Illustrative decision
If the proposed treatment creates $80,000 of incremental currently usable deductions and the assumed incremental federal rate is 32%, the modeled current federal effect is $25,600. If the deductions are suspended, the immediate modeled effect can be zero. Fees, state treatment and future recapture are excluded from this simplified calculation.
Separate study scope from eligibility
A study should reconcile the supported purchase and improvement basis, including land and assets already reported separately. The taxpayer must separately establish acquisition eligibility, service dates and how the rental is treated. Short stays alone do not prove material participation. The illustration uses assumed inputs to teach the calculation; it does not estimate what a new client will save.
What this example does and does not establish
The facts and numbers on this page are hypothetical teaching inputs. They are not a verified client result, a filed-return outcome or a prediction of typical savings. An actual engagement requires source records, applicable-year analysis and a final return reconciliation. No individual professional review is claimed. Cost segregation and other project work are separately scoped from advisory.
Records and decisions to prepare
- Verify acquisition basis and land
- Document asset-level eligibility
- Establish activity and participation treatment
- Calculate incremental usable deductions
- Distinguish modeled effect from a filed outcome
Primary references for this decision:
- IRS Publication 946: depreciation methods and eligibility
- IRS Publication 925: passive activity and at-risk rules
Examples illustrate decisions, not guaranteed outcomes. Apply the rules for the relevant tax year and review the underlying facts before filing.
Worked examples and implementation · Browse owner tax decisions · Editorial standards
Talk Through Your Situation
Every situation turns on its own facts. Schedule a discovery call and we will walk through what applies to you, what it is worth, and what it would take to put it in place.
Evidence needed before applying this strategy
A comparable engagement should reconcile the original basis, land, service dates, prior depreciation, study methodology, applicable elections, activity classification, loss limitations, and filed-return implementation. An estimated tax benefit should be distinguished from a filed deduction and from an actual refund or reduction in tax paid.
For a portfolio, document the activity grouping and participation analysis instead of automatically combining hours across every property. For a lookback, choose the accounting-method or amendment procedure before promising recovery.
- IRS cost segregation audit technique guide
- IRS Publication 946: depreciation and bonus eligibility
- IRS Publication 925: passive activity and at-risk limitations
- IRS Publication 544: dispositions and recapture
Review study scope | Screen a rental-property scenario | Choose the correction method | Read our evidence standards