Cost Segregation

Recapture Myth Case Study: Multifamily Cost Segregation

A multifamily case study showing why depreciation recapture should be modeled instead of used as a blanket reason to avoid cost segregation.

Planning resource

A working asset for the next advisor conversation.

Use this resource to organize the facts, records, and timing questions before the planning window narrows.

Format

Case Study

Window

Hold

Output

CPA-ready

Recapture model, not recapture fear

The useful question is present value, hold period, and taxpayer fit.

Recapture was a real consideration, but the case became clearer once current tax reduction, accelerated components, hold period, replacements, and exit assumptions were modeled together.

$1.6M

purchase price

Multifamily property acquisition.

$403K

accelerated

Components eligible for accelerated depreciation.

$150K

tax reduction

Approximate current reduction at the owner bracket.

Case chart

Building basis to current tax reduction

Bars use the public case amounts: $1.3 million depreciable building value, $403,000 accelerated components, and about $150,000 current tax reduction.

Depreciable building

Building value basis.

$1.3M

Accelerated components

Shorter-life components.

$403K

Current tax reduction

Owner-specific benefit.

~$150K

Planning path

Step 1
Identify accelerated components
Step 2
Model current tax use
Step 3
Compare hold period and recapture
Step 4
Decide with CPA context

Case StudyHoldownerinvestorCPA

Last updated: 2026-06-26

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Case-study issue

An owner purchased a $1.6 million multifamily property, with roughly $1.3 million allocable to depreciable building value. He had been warned away from cost segregation because of future recapture.

The engineering review identified $403,000 in components eligible for accelerated depreciation. At the owner's bracket, the current tax reduction was about $150,000. The better question was not whether recapture existed. It was whether the present value of the tax savings, the owner's hold period, future replacements, and exit plan made the strategy worthwhile.

Why it matters

Recapture is real, but it is not a complete answer. Five-year components may naturally burn off, replaced components may come off the schedule, and invested tax savings may produce value while the owner still controls the capital.

Planning checks before deciding

What bracket will the deduction actually offset this year?
What is the realistic hold period?
What recapture exposure could exist on sale?
Are planned renovations likely to retire accelerated components?
Will current cash savings be reinvested or used in the business?

JPOPE planning lens

Cost segregation should not be sold on generic 40% math or rejected on generic recapture fear. The useful answer comes from modeling the taxpayer.