Multifamily

Cost Segregation for Duplexes, Triplexes, and Fourplexes

A fourplex has four kitchens, four sets of appliances, and four sets of flooring sharing one structural shell. The components that depreciate fast multiply with unit count. The building that depreciates slowly does not.

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Unit count does not change your depreciation schedule

Lenders call five or more units "commercial." That is a financing term, and it does not carry over to depreciation.

Under Section 168(e)(2)(A), a building is residential rental property on the 27.5-year schedule when 80% or more of its gross rental income comes from dwelling units. A duplex qualifies. So does a 40-unit apartment building. What breaks the test is income mix, such as significant ground-floor retail, or transient occupancy where average stays run seven days or less.

If your building is residential and has no commercial tenants, the same component analysis that works on a single-family rental works on yours, at several times the scale.

What gets reclassified

Residential studies most commonly move 20% to 40% of building basis into 5, 7, and 15-year property. Small multifamily lands at the upper end of that range.

5-year property, once per unit

Refrigerators, ranges, dishwashers, microwaves, cabinetry and countertops, carpet and vinyl plank flooring, decorative lighting, window treatments, and in-unit laundry. A fourplex has four of most of these.

15-year land improvements

Tenant parking, striping and wheel stops, carports, sidewalks, site lighting, fencing and dumpster enclosures, landscaping and irrigation, drainage, and mailbox kiosks. Small multifamily almost always has dedicated parking. Single-family rentals often do not.

Shared spaces

Common-area laundry equipment and coin systems, hallway and stairwell finishes, shared storage, and any leasing or utility room contents. These do not exist on a single-family rental at all.

What a fourplex study produces

A $850,000 fourplex, with $170,000 allocated to land, leaves $680,000 of depreciable building basis.

Reclassified into 5, 7, and 15-year property (35%): $238,000
Year-one deduction with 100% bonus depreciation: $238,000
Tax deferred at a 32% marginal rate: ~$76,000

A single-family rental at the same $850,000 price, with one kitchen instead of four and no shared parking, more often sits in the lower part of the range. At 22% that is about $150,000. Same purchase price, and the fourplex carries well over half again the year-one deduction.

Illustrative figures. Your reclassification depends on the property's age, condition, renovation history, site work, and how the purchase price allocates between land and building. The instant estimate runs your specific property.

Five or more units

The depreciation schedule does not change at five units and the component categories are the same. What changes is scale and documentation: more units to walk, more variation between them, and usually more site work, plus items a fourplex rarely has such as a laundry building, leasing office, pool, or separately metered utility infrastructure.

Properties above four units are scoped individually rather than run through the standard flat-fee process. We confirm fee and timing before any work starts.

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Multifamily cost segregation questions

Is a fourplex depreciated over 27.5 or 39 years?

27.5 years. A building is residential rental property when 80% or more of its gross rental income comes from dwelling units, and unit count is not part of that test. The 39-year schedule applies when the building fails the 80% test, usually because of commercial tenants, or when occupancy is transient with average stays of seven days or less.

How much more does a fourplex reclassify than a single-family rental?

Residential studies most commonly land between 20% and 40% of building basis. Small multifamily sits at the upper end of that range, and a single-family rental more often sits in the lower part. The gap comes from per-unit components: four kitchens, four sets of appliances, four sets of flooring, and often four water heaters and HVAC systems, all sharing one structural shell. Dedicated tenant parking adds 15-year land improvements that most single-family rentals do not have.

Does a mixed-use building with retail downstairs still qualify?

Cost segregation applies either way, but the depreciation schedule depends on the income mix. If the commercial rent pushes dwelling-unit income below 80% of gross rental income, the entire building moves to the 39-year nonresidential schedule. The component reclassification still works, and qualified improvement property becomes available, which it is not on residential. Mixed-use properties are scoped individually.

I bought my duplex five years ago. Is it too late?

No. A look-back study analyzes the property as of the date you placed it in service and gives your CPA the component detail needed to claim the missed depreciation as a catch-up on a current return, generally without amending prior years. Your CPA determines qualification and filing mechanics. Our look-back guide covers how it works.

I am renovating units one at a time. When should I order the study?

Before the work, if you can. When you replace a component that is still on your books, you can generally write off its remaining basis through a partial disposition election, but that requires knowing what the removed component was worth. A study establishes those component values. Without one there is nothing to dispose of, and you end up depreciating a kitchen that no longer exists alongside the new one.

Do you need to visit the property?

No. Standard residential studies are completed remotely from photos, public records, and satellite imagery, and delivered in 2 business days. The IRS Cost Segregation Audit Techniques Guide does not require an on-site inspection; it evaluates the quality of the analysis and the documentation behind it.

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This page is for educational purposes only and does not constitute tax, legal, or financial advice. RentalWriteOff prepares cost segregation studies; your CPA or tax professional determines qualification, return treatment, and filing mechanics. Tax savings figures are illustrative and depend on individual circumstances.