Multifamily reclassifies deepest. More interior finish, more land improvements, more bonus-eligible basis. The Chens bought a 24-unit Atlanta apartment building. The study found $1.17M of short-life basis — and the engineer documentation made every dollar defensible.
The Chens are a working couple with a small portfolio of investment properties. In March 2025 they closed on a 24-unit garden-style apartment building in Atlanta — $5M purchase, $1.1M land, $3.9M depreciable basis. They qualify as real estate professionals under §469(c)(7).
Their CPA didn't just ask, "What's the deduction?"
The real question was: can a seven-figure year-one deduction land cleanly and survive review?
Six checks in order. On multifamily, the dollars get big — but the documentation has to scale with them. Engineer schedules, component classifications, and REPS qualification are what turn the deduction into usable cash.
| Step | What happened | What this unlocks |
|---|---|---|
| 01 | Closed on a 24-unit Atlanta apartment for $5M; $3.9M depreciable basis after land | Reclass-eligible basis identified |
| 02 | On-site engineer pass — photos, square-footage takeoffs, component schedules | Audit-ready documentation |
| 03 | Cost seg reclassified $1.17M into 5-year ($780K) and 15-year ($390K) buckets | Short-life basis isolated |
| 04 | 100% bonus depreciation applied at the 2025 PIS to all short-life basis | $1.17M bonus-deducted |
| 05 | First-year MACRS on the $2.73M shell at the half-year convention | $99K additional |
| 06 | Household qualified as real estate professionals — loss is non-passive | $1.27M usable against ordinary income |
Total year-one deduction: $1,269,000
Federal tax rate: 37%
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Federal tax saved: $469,530
Study cost: $12,000
ROI: 39×
The kind of mid-size multifamily where cost seg delivers its highest return on study fee. Big enough that the 5- and 15-year buckets reach meaningful dollars; small enough that one engineer visit produces a complete component schedule.
| Class | Basis allocated | % of basis | Year-1 deduction |
|---|---|---|---|
| 5-year — Personal property Interior finishes, appliances, FF&E, decorative lighting, cabinetry | $780,000 | 20% | $780,000 |
| 15-year — Land improvements Parking lot, sitework, landscaping, exterior lighting, signage, sidewalks | $390,000 | 10% | $390,000 |
| 27.5-year — Building shell Structural, roof, framing, primary plumbing & electrical, HVAC core | $2,730,000 | 70% | $99,000 |
| Total | $3,900,000 | 100% | $1,269,000 |
The 5- and 15-year buckets are 100% bonus-eligible at the 2025 placed-in-service date. The 27.5-year shell carries first-year MACRS at the half-year convention. Together: a $1.27M year-one deduction that lands in full on the Chens' 1040 because they qualify as real estate professionals.
5-year bonus at 100%: $780,000 15-year bonus at 100%: $390,000 27.5-yr 1st-yr MACRS: $99,000 ───────────────────────────────────── Total year-one deduction: $1,269,000 At the Chens' 37% federal marginal rate: Federal tax saved: $470,000 Study cost: $12,000 ROI: 39×
A $470K federal tax position has to survive scrutiny. The Chens' study landed at 88 on the defensibility band. That's not a marketing number — it's the engine's score against the IRS Cost Segregation Audit Techniques Guide. Every component cites a source, every reclassification cites a method.
Multifamily at this scale ships with an on-site engineer pass: photo inventory of components, square-footage takeoffs, mechanical schedules. Defensibility band moves into the 85+ range as a result.
Every component classification cites a section of the IRS Cost Segregation Audit Techniques Guide (Publication 5653) or controlling case law. No "we think this is 5-year" line items.
The legal foundation for distinguishing personal property from real property (Whiteco Industries v. Commissioner, 65 T.C. 664). Engine applies the six factors to ambiguous components — permanence, removability, use, etc.
88 on the band means strong. CPA sees the score before signing the study, before the client invoice goes out. Soft positions don't ship — they escalate for additional documentation first.
Adjust the purchase price, land allocation, and short-life reclass profile. The estimator computes year-one deduction at typical multifamily reclass ratios with 100% bonus at 2025 PIS. Illustrative only — real studies depend on engineer documentation.
Run the study, show the usable deduction, and give the client a clear savings story with the audit trail behind it.