CASE STUDY

Residential Rental Home

Poconos, PA

Highlights

When a CPA you have trusted for over a decade calls and says, “This client needs your help,” it means something. It’s more than a referral—it is a reflection of earned respect and a shared commitment to doing right by people.

This particular client had just closed on a $1.6 million short-term rental home in the Poconos, Pennsylvania. While they understood depreciation in theory, they had no idea how much value could actually be unlocked. The depreciable cost basis (excluding land) was $1.48 million.

Our team applied IRS Approach #2—the Detailed Engineering Cost Estimate Approach—and delivered a study that transformed their tax position: $415,175 in first-year depreciation compared to just $53,818 under straight-line. By accelerating more than 40% of the property’s value into short-life asset classes, we created a powerful boost in cash flow right from the start.

But more than numbers, this was about delivering clarity, confidence, and a relationship built on doing things the right way—for the long haul.

Statistics

$1,480,000

Cost Basis

$53,818

First-Year Depreciation (Straight-Line)

$415,175

First-Year Depreciation (Cost Seg + 60% Bonus)

$594,973

Total Accelerated Depreciation

40%

Depreciation Accelerated

Approach

Cost Seg America used the IRS’s Approach 2 — the Detailed Engineering Cost Estimate Approach outlined in the IRS Cost Segregation Audit Technique Guide — to accurately classify assets and maximize allowable depreciation. This is the highest-level approach available for purchased properties.
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‍Breakdown of Reclassified Assets:

Comprehensive Data Collection – Our team gathers all relevant documents, including settlement statements, site plans, and architectural drawings, to create a complete asset profile.
On-Site Inspection – Our analysts conduct a detailed inspection to identify every critical component of the property.
Precise Asset Reclassification – Our team categorizes property components according to IRS guideline, ensuring compliance while accelerating depreciation schedules.
Optimized Depreciation Application – Our team's analysts apply MACRS to maximize tax deferrals and enhance cash flow.
Seamless CPA Collaboration – Our cost segregation report is delivered audit-ready, ensuring smooth integration into tax filings with full IRS defense.
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💡 How This Property Was Reclassified:

‍🟦 27.5-Year Property: $885,027 (59.8%)

🟩 15-Year Property: $358,998 (24.3%)

🟨 7-Year Property: $2,156 (0.1%)

🟥 5-Year Property: $233,819 (15.8%)

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“Over 40% of the building’s value was shifted into short-life assets eligible for accelerated depreciation—unlocking faster cash flow!”

Breakdown of Reclassified Assets

27.5-Year Property (Structure)

Foundation, framing, roofing, load-bearing walls, plumbing infrastructure, HVAC distribution systems, insulation within walls and ceilings

15-Year Property (Land Improvements)

Driveway, parking pad, sidewalks, landscaping, fencing, mailbox structures, exterior lighting systems

7-Year Property (Telecom & Special Equipment)

Security system components, smart home integration hardware

5-Year Property (Short-Life Assets)

Kitchen appliances (stove, fridge, dishwasher), bathroom fixtures, cabinetry, interior carpeting, luxury vinyl plank flooring, light fixtures, ceiling fans, blinds

Summary

The numbers tell a powerful story. Our team applied IRS Approach #2—the Detailed Engineering Cost Estimate Approach—to help this residential rental owner arrive $415,175 in first-year depreciation—more than seven times what straight-line depreciation would have allowed. With a 37% federal tax rate, that translated into $153,615 in immediate tax savings, compared to just $19,913 without cost segregation.

But the impact went far beyond the dollars. This success strengthened a decade-long relationship with the referring CPA, reinforcing the power of partnering with a trusted team. The client walked away with more than a tax benefit—they gained a new level of clarity about how strategic planning can reshape their financial future. And they’ve already begun sharing that insight with others.

At Cost Seg America, we are here to help you protect what you have purchased, maximize what is possible, and move forward with confidence.

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