Case Study: Cost Segregation Analysis for a Single-Family Rental Home in Brandon, MS

Narrative

In 2024, the owners of a single-family rental home in Brandon, Mississippi, undertook strategic tax planning to enhance their investment. The property consists of a single 1-story building encompassing 2,363 square feet. Originally constructed in 1983, the home features 2 rental units designed to cater to short-term guests.

The building's exterior showcases wood siding and asphalt shingle roofing. The interior is well-appointed, featuring amenities such as high-efficiency HVAC systems, electric water heaters, and contemporary lighting fixtures. The property also includes a concrete patio and wood fencing.

The owners engaged Engineered Tax Services (ETS) to perform a comprehensive cost segregation study of the property. This study aimed to identify and reclassify specific assets, enabling the acceleration of depreciation and optimizing tax benefits. This case study outlines the cost segregation strategy employed and its significant impact on the financial outlook of the property.

Objective

The primary objective of the cost segregation study was to identify and classify the rental home's assets to optimize the owners' tax savings. By breaking down and reallocating components into shorter depreciation life categories, ETS aimed to provide both immediate and long-term financial benefits through accelerated depreciation.

Methodology

ETS employed a detailed, engineering-based approach, which included:

1. Physical Inspection: conducting a thorough site visit to identify and photograph the property's components
2. Document Review: examining architectural plans, construction documents and accounting records
3. Cost Analysis: applying engineering principles to allocate costs to specific asset classifications
4. Depreciation Calculation: calculating depreciation using IRS-accepted methods such as the Modified Accelerated Cost Recovery System (MACRS)

Asset Allocation