Salt Lake City's rental market is thriving. Between the University of Utah, downtown growth, and proximity to world-class skiing, demand for rental housing remains strong, and property values continue climbing. For SLC investors, this appreciation creates substantial equity, but it also means higher tax bills. That's where cost segregation comes in. Through a detailed engineering analysis, Salt Lake City property owners can accelerate $90,000–$150,000+ in depreciation into Year 1, significantly reducing their tax burden and freeing up capital for their next investment. This article explores how cost segregation works with residential properties in the Salt Lake City and Utah area.
What Is a Cost Segregation Study?
A cost segregation study breaks down an asset into many smaller assets and places those assets in "buckets" with shorter depreciation lives. This allows you to depreciate your kitchen appliances, carpet, and window blinds on a much shorter timeline than depreciating them alongside the structure itself. A rental property is made up of more assets than you'd think, and a cost segregation study helps pull that valuable depreciation forward. Cost segregation firms will usually find 25–30% of a property's cost basis to be short-lived property. 28% of a property with a depreciable basis of $600,000 is $168,000—a ton of potential depreciation. Additionally, Bonus Depreciation helps to further front-load a percentage of that basis all the way to Year 1, helping you save even more.
Let's work through it from the top, explaining each step of what a cost segregation study would look like for a home in the Sugar House area of Salt Lake City, Utah.
Sugar House Salt Lake City: Cost Segregation Case Study
Sugar House is a vibrant, walkable, and historic neighborhood in southeastern Salt Lake City, Utah, centered around the intersection of 1100 East and 2100 South. It features tons of local restaurants and shopping, gorgeous green parks, and great access to the city. It's a popular location for college students, young professionals, and young families to find housing, and has been steadily appreciating for years. Median home prices in Sugar House have climbed to $500,000–$650,000, making it an attractive market for investors seeking cash-flowing rental properties and strategic tax planning through cost segregation.
We chose Sugar House for this example because it represents a typical Salt Lake City investment property: mid-range pricing, strong rental demand, and older construction that often yields higher cost segregation benefits. Additionally, it's where an overwhelmingly large share of our SLC-based cost segregation studies have been, so it should provide a clear idea of the impact a study would have in this area.
Consider this Sugar House single-family rental:
Example Property: Sugar House, Salt Lake City
- Purchase Price: $575,000
- Land Value: $95,000
- Property Type: Single-family home, 3 bed, 2 bath
- Built: 1950s
- Use: Long-term rental or Airbnb
- Purchase Date: 03/01/2025
- Placed in Service: 03/21/2025
With this information we can get a good idea of the benefits a cost segregation study would provide.
How Depreciation Works for a Salt Lake City Rental
The first step is to calculate the depreciable basis of the property. This is the amount you'll depreciate bit by bit over the next 27.5 years. We calculate this by subtracting the value of the land from the total price. Doing this gives us a depreciable basis of $475,000.
Land ratios differ dramatically by location. A $575,000 property in Sugar House might have $100,000 in land value (17%), while the same price point in Park City could have $200,000+ in land value (35%+), leaving less depreciable basis.
Without a cost segregation study, you would depreciate the entire $475,000 building basis over 27.5 years using straight-line depreciation. This means you'd claim approximately $17,273 per year ($475,000 ÷ 27.5 years).
While the IRS allows this standard approach, they also permit a much more advantageous strategy: accelerating depreciation through cost segregation.
A cost segregation study identifies and reclassifies building components into shorter depreciation periods. Instead of treating everything as 27.5-year residential property, the study separates assets into three categories:
- 5-year property: Carpeting, appliances, certain fixtures
- 15-year property: Landscaping, land improvements, certain building systems
- 27.5-year property: Building structure and permanent components
For our Sugar House example: Cost segregation studies typically identify 20–30% of the depreciable basis as accelerated property. We'll use a conservative 26% for this example.
- Total depreciable basis: $475,000
- Reclassified to 5- and 15-year property (26%): $123,500
- Remaining 27.5-year property (74%): $351,500
This reclassification is helpful, but the real power comes from bonus depreciation.
100% Bonus Depreciation for Salt Lake City & Utah Rentals
For properties acquired and placed in service after January 19, 2025, you can elect to take 100% Bonus Depreciation on the reclassified 5-year and 15-year property. This means you can deduct the entire $123,500 in Year 1 instead of spreading it over 5 and 15 years.
Year 1 Depreciation Breakdown
- Bonus depreciation (5- and 15-year property): $123,500
- Regular depreciation (27.5-year property): $12,782 ($351,500 ÷ 27.5)
- Total Year 1 depreciation: $136,282
Compare this to the standard approach of just $17,273 per year. That's an additional $119,009 in Year 1 deductions.
What About Future Years?
In years 2–27.5, you'll continue depreciating the remaining 27.5-year property at $12,782 per year. Yes, this is less than the $17,273 you would have claimed without cost segregation, but that's because you've already captured most of the benefit upfront.
Can Salt Lake City Investors Use Cost Segregation Losses Against W-2 Income?
"Can I take advantage of this?" is the million-dollar question, and for good reason. A cost seg study can help accelerate depreciation, but it doesn't automatically mean you can use it. The IRS says most rental activities are passive activities. As such, the depreciation or loss from the property generally cannot offset W-2 wages, business income, or portfolio or dividend income.
However, if you or your spouse hold Real Estate Professional status, you may be able to take the losses against all of your and your spouse's income. To gain that status according to the IRS, you or your spouse would need to spend 750 or more hours in real estate trades or business, it would have to make up more than 50% of your total working hours, and you would have to materially participate in your rental activities. A lawyer whose wife works as a real estate agent, for example, may be able to offset their income from their professions because of the wife's Real Estate Professional status. This is the golden ticket to being able to take full advantage of cost segregation studies.
Cost Segregation for Salt Lake City Investors: Summary
Cost segregation studies are a tax tool that can create tremendous opportunities in your real estate investing journey. When it makes sense to get one, it really makes sense. The ability to buy one residential property in the Salt Lake area, cost seg it, and get another property the following year is a great play—and one I've seen executed several times already.
If you have the right kind of property and the right income, all that's left is an engineer-based, robust, audit-ready cost segregation study. We at COST APEX INC can provide that.
Thank you for reading this far. I hope this article gave you a clearer picture of what a cost segregation study is and how it can help you in your real estate journey. If you have any questions, please feel free to reach out at [email protected].
Have Questions About Cost Segregation in Salt Lake City or Utah?
If you have any questions about cost segs and whether one makes sense for your situation, feel free to reach out for a free, quick consultation. We'd love to meet you!