$1.94M Reclassified on a 125-Unit Apartment Community in Colorado
A returning USTAGI client placed this 125-unit apartment community in Colorado in service in October 2025 and ordered a cost segregation study for the 2025 tax year. Of the $5.67M purchase price, $736K was allocated to land, which cannot be depreciated, leaving a depreciable basis of $4.93M.
- Purchase price
- $5.67M
- Depreciable basis
- $4.93M
- Reclassified
- $1.94M
- Share of basis
- 39%
The property and the result
As residential rental property, the building would otherwise be depreciated in equal amounts over 27.5 years. The study moved $1.47M into 5-year property and $466K into 15-year property, a total of $1.94M or 39% of the basis.
That is well above the 24.8% median across 300 multifamily studies USTAGI has completed. Communities with many units, shared amenities and extensive site work tend to have more of their cost in components with short recovery periods.
How the purchase price was allocated
| Category | Amount | Share of price |
|---|---|---|
| Land (not depreciable) | $736K | 13% |
| 5-year property | $1.47M | 26% |
| 15-year property | $466K | 8% |
| Remaining 27.5-year building basis | $2.99M | 53% |
How it compares: this study reclassified 39% of the depreciable basis. Across 300 multifamily studies USTAGI has completed, the median is 24.8%.
How the study was done
- Study type
- Detailed engineering study
- Inspection
- On-site inspection with interior photos
- Cost data
- RSMeans construction cost data
- Timing
- Same-year study for the 2025 tax year
- Placed in service
- October 2025
- Depreciation before the study
- 27.5-year residential rental
- Client
- Returning USTAGI client
What typically qualifies on a property like this
The study assigns each component of the building and site to its IRS recovery period. On a 125-unit apartment community, these are the kinds of items that usually move off the 27.5-year schedule.
5-year property
- Carpet, vinyl and other removable flooring
- Kitchen cabinets, countertops and appliances
- Decorative and accent lighting
- Window treatments and millwork
- Dedicated electrical and plumbing for appliances and laundry
15-year property
- Parking lots, curbs and sidewalks
- Landscaping and irrigation
- Site lighting and fencing
- Pools, playgrounds and outdoor amenities
- Site drainage and signage
What this means at tax time
Property placed in service in 2025 may qualify for 100% bonus depreciation if it was acquired after January 19, 2025, subject to applicable requirements. Where it applies, the $1.94M of reclassified property can be deducted in the first year instead of over 5 and 15 years.
Even without bonus depreciation, 5- and 15-year property is depreciated far faster than the 27.5-year building schedule, so more of the deduction lands in the early years of ownership. The remaining $2.99M of basis stays on the 27.5-year schedule.
Studying the property in the year it is placed in service means the faster schedules start on the first return, with no catch-up filing needed.
Questions about this case study
With 125 units, a large share of the cost sits in unit finishes such as flooring, cabinets, appliances and lighting, plus parking, landscaping and site lighting across the property. Those components qualify for 5- and 15-year recovery instead of 27.5 years.
For a property of this size USTAGI uses a detailed engineering study, which includes an on-site inspection with photographs. The inspection documents the components the study assigns to each recovery period, which is what supports the study if the IRS asks questions.
Land is not depreciable, so the purchase price is split between land and building, usually using the county assessor's records or an appraisal. Here $736K, about 13% of the price, went to land.
Yes. A study in the year the property is placed in service lets the owner start the faster schedules on the first return, with no catch-up filing needed.
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Results shown are from a completed USTAGI cost segregation study and are not a guarantee of future results. The client is not named, the location is shown by state and amounts are rounded. “Reclassified” is the depreciable basis the study moved into 5, 7 and 15-year property; it is not a tax-savings figure. Outcomes depend on each property and each owner’s tax situation. Consult your tax advisor about your situation.