CASE STUDY

Short-Term Rental

Sedona, AZ

Highlights

In 2023, a real estate investor acquired a $1,370,800 short-term residential rental in Sedona, Arizona, and turned to Cost Seg America to unlock its full tax-saving potential. Our team applied IRS Approach #2—the Detailed Engineering Cost Estimate Approach—to claim $375,489 in first-year deductions, unlocking over 31% of the property's value immediately.

A former Big Six accounting firm executive, the client brought decades of financial expertise and knew the value of component-level precision. He chose Cost Seg America for our fully engineered approach—one that meticulously breaks out mechanical, electrical, and plumbing (MEP) systems to meet IRS standards.

By reclassifying 31% of the property, we helped him turn long-term depreciation into immediate cash flow, fueling his plans to expand his portfolio. A trusted client for over three years, he knows the tax code—and he knows who to trust to make it work for him.

Statistics

$1,370,800

Cost Basis

$35,149

First-Year Depreciation (Straight-Line)

$375,489

First-Year Depreciation (Cost Seg + 80% Bonus)

$427,160

Total Accelerated Depreciation

31%

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.
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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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With Cost Seg America, tax strategy is not just about compliance—it is about unlocking capital and fueling growth.

💡 How This Property Was Reclassified

🟦 39-Year Property: $943,640 (69%)

🟩 15-Year Property: $249,939 (18.3%)

🟨 7-Year Property: $1,993 (0.1%)

🟥 5-Year Property: $175,228 (12.8%)

Breakdown of Reclassified Assets

27.5-Year Property (Structure)

Foundation and framing • Roof and load-bearing walls • Plumbing infrastructure • HVAC ductwork and air handler housing • Insulation within walls and ceilings

15-Year Property (Land Improvements)

• Driveway and parking area • Walkways and sidewalks • Landscaping and irrigation systems • Concrete patios or decks • Exterior lighting and fencing

7-Year Property (Special Equipment)

• Telecommunication systems (cabling, routers, control panels) • Home theater wiring and equipment housing

5-Year Property (Short-Life Assets)

• Kitchen appliances (oven, fridge, dishwasher) • Built-in cabinetry and quartz countertops • Interior lighting fixtures and ceiling fans • Bathroom vanities and mirrors • Flooring: tile and luxury vinyl plank

Summary

By partnering with Cost Seg America, this seasoned investor unlocked $375,489 in first-year depreciation—over 10x what straight-line depreciation would have allowed. Our Detailed Engineering Study reclassified 31%of the residential rental property into short-life assets, unlocking significant tax savings and immediate cash flow.

At a 37% tax rate, that equates to $138,931 in real tax savings—capital that can now be used to improve the property, pay down debt, or reinvest in the next acquisition. This investor understood the true value of cost segregation and chose Cost Seg America for our audit-defensible, top-tier approach trusted by serious investors.

Cost segregation is a proven strategy used by the most sophisticated real estate investors to boost cash flow, scale faster, and reduce tax liability. If you own commercial or residential rental property and have not done a study, now is the time. We deliver audit-ready results that give you clarity, control, and confidence in your financial future.

Complimentary Proposal