Cost Segregation Study on a Condominium in SC

[Julio Gonzalez]

A cost segregation study was performed in 2024 on a residential condominium in Hilton Head Island, South Carolina with a depreciable cost basis of $265,000. The single-story unit, originally constructed in 1981, spans 888 square feet.

Significant improvements were made to incorporate modern amenities, including contemporary appliances, a central HVAC split system and updated fixtures.

The aim of the study was to identify opportunities for accelerated depreciation and tax savings in order to provide both immediate and long-term financial advantages for the property owner.

Accelerated depreciation strategies can help real estate investors reduce their tax burdens immediately, boosting their bottom line in the process.

For this property, 35.35% of the total depreciable basis was classified as 5-year class life.

Assets identified in this category included:

• HVAC equipment
• Electrical systems and fixtures
• Floor coverings
• Window treatments
• Plumbing fixtures

The remaining 64.65% of the total depreciable basis was classified as a 39-year class life.

Assets identified in this category included:

• Interior walls and ceilings
• Building structure
• Basic electrical and plumbing systems
• General building components
• Doors and windows

The study resulted in a first-year depreciation increase of $62,803.40.

An engineering-based approach was taken for this cost segregation study, which used the following methodology:

• A thorough site visit to photograph and identify property components
• A cost analysis using engineering principles to allocate costs to specific asset classifications
• Examination of architectural plans, accounting records and construction documents
• Calculation of depreciation using IRS-accepted methods like MACRS

Keep in mind that bonus depreciation started to phase out in 2023. It’s 40% in 2025, 20% in 2026 and will be phased out in 2027 unless legislation changes.

For additional questions, check out this article on Cost Segregation FAQs.

Are you considering a cost seg study for any of your properties?