Cost segregation case study · Short-term rental
The Serrano Avenue
Purchase price
$2.35M
Depreciable basis
$470K
Year-one deduction
$197K
Why this study reads the way it does
In Los Angeles, the land is most of the price
A short-term rental in central Los Angeles, where the dirt carries the value: our assessor record puts land at 80% of the price ($1,880,000), leaving a depreciable building of just $470,000. In a market like this the deduction is not won by a big building basis. It is won by classifying every component and every furnishing the building holds.
A thin building basis, worked hard
80% land · depreciable building $470,000 · deductible this year $196,722
With land at 80%, the building is a sliver of the purchase. Cost segregation pulls the short-life components — finishes, fixtures, site work — out of the slow 39-year line, so $196,722 is deductible this year despite the modest $470,000 building basis.
The furnishings are itemized from the listing photos
$63,620 · counted once, priced at catalog value
No furnishing receipts, so the scan reads the listing photos across 13 rooms — an item seen in three frames counts once — and prices each piece at conservative catalog replacement value. That is $63,620 of furnishings the owner already bought, recovered on the five-year schedule.
No remodel, nothing invented
an itemized record of what is there, not a construction story
This owner did not renovate, so there is no reconstruction write-off and none is claimed. The study is a clean itemized record of the building and its contents, which is exactly why a high-land property still produces a real first-year deduction.
The lesson. In high-land markets the building basis is small, so the deduction depends on classification density — how completely the components and furnishings are identified — not on the size of the basis.
Where the cash went
$2.35M in, split into land and building
The property was bought for $2,350,000. Land never depreciates, so it's carved out first; the building basis becomes the depreciable pool the study then accelerates.
Where the $2.35M went
Every dollar in, by where it landed. Land never depreciates; the building basis is what the study accelerates.
$2.35Mtotal spend
Land (never depreciates)$1,880,000 · 80%
Building basis (from purchase)$470,000 · 20%
Building $470,000 = $470,000 depreciable basis.
Inside the study
What the engine found
The deterministic engine separated the $470,000 depreciable basis into IRS recovery classes, then the engineered review confirmed every component against the source documents.
Component allocation
$533,620 of depreciable property across MACRS recovery classes — the $470,000 building basis plus the $63,620 furnishings pool.
$534Kbasis
5-year personal property$86,960 · 16%
15-year land improvements$146,901 · 28%
27.5-year building shell$236,139 · 44%
Furnishings & equipment (5-yr)$63,620 · 12%
Swimming Pool - In-Ground S… $57KHVAC system, zoned $27KEngineered Wood Flooring, F… $26KExterior wall, wood frame $26KExterior Wall Finish, Stucco $16KPavers, Driveway/Walkway $16KConcrete slab $16KFoundation, piers & beams $16K
Year one, in dollars
Accelerated depreciation, taken in year one.
| Accelerated depreciation | $196,722 |
| Total year-one deduction | $196,722 |
| Straight-line without a study | ~$19,404/yr |
About 10× more deduction pulled into year one than straight-line.
Depreciation by year
Year-one spike from bonus depreciation, then the building shell.
| Year 1 | $195,257 |
| Year 2 | $16,943 |
| Year 3 | $14,438 |
| Year 4 | $12,853 |
| Year 5 | $12,626 |
| Year 6 | $11,419 |
| Year 7 | $10,320 |
| Year 8 | $10,320 |
| Year 9 | $10,323 |
| Year 10 | $10,320 |
| Year 11 | $10,323 |
| Year 12 | $10,320 |
| Year 13 | $10,323 |
| Year 14 | $10,320 |
| Year 15 | $10,323 |
| Year 16 | $9,454 |
| Year 17 | $8,587 |
| Year 18 | $8,587 |
| Year 19 | $8,587 |
| Year 20 | $8,587 |
| Year 21 | $8,587 |
| Year 22 | $8,587 |
| Year 23 | $8,587 |
| Year 24 | $8,587 |
| Year 25 | $8,587 |
| Year 26 | $8,587 |
| Year 27 | $8,587 |
| Year 28 | $8,587 |
| Year 29 | $1,074 |
Method. Allocations follow the IRS Cost Segregation Audit Techniques Guide, Rev. Proc. 87-56, and MACRS (Pub. 946), with the 1% bonus rate (placed in service 2023) applied to qualifying 5- and 15-year property. The engine produces the figures deterministically; AI is used only to sort and extract from uploaded documents. Every line cleared the engineered review.
State tax treatment
What each state does with this deduction
Each state this study touches, classified by how it treats the federal year-one deduction.
California (CA)Bonus decoupled
State still allows the deduction, but delays part of it.
$195,257
Federal year-one deduction
$27,957
California year-one deduction
$167,299
Added back this year, recovered later
Lifetime difference: $0. Timing only, recovered in later years.
CA defers up to $167,299 of the deduction, then returns it over the following years, reaching $0 by year 16. The lifetime deduction is the same; only the timing differs.
Peak deferral Still to be recovered, by year
You still get the federal deduction now. California taxable income is $167,299 higher than federal in year one, but that amount is deducted in later years.
Filing action
Use the federal schedule for the federal return and a California recomputation schedule for the CA return.
Schedule: CA FTB 3885A
Run on Unlevered · engineered review · ULV-2026-1334
Common questions about this study
- What does a real cost segregation study look like?
- This is a complete, engineer-reviewed cost segregation study on a short-term rental property. Every figure is computed by a deterministic engine from source documents, cited to the underlying tax authority, and reproducible — including a 13-room component reclassification and a full depreciation schedule. Addresses and client identities are changed for privacy; the facts and dollars are true engine output.
- How much does this study accelerate into the first year?
- On a $2,350,000 property with $1,880,000 (80%) allocated to non-depreciable land, the study establishes $470,000 of depreciable basis and produces a $196,722 first-year deduction at 1% bonus depreciation.
- Is a cost segregation study like this defensible?
- It is built to the standards in the IRS Cost Segregation Audit Techniques Guide: each component is classified with a citation, the basis derivation is engineered rather than estimated, and every calculation is reproducible. Unlevered prepares and signs the engineering study; the property owner's CPA remains the sole tax return preparer.
- What makes these studies transparent?
- Every number traces to a source. The study shows the room-by-room allocation, the reasoning behind each component's classification, and a calculation that can be reproduced from the same inputs — not a black-box estimate.