Cost segregation is a tax strategy that can be beneficial for owners of rental properties.

Here's how it works:

Normally, the entire cost of a rental property is depreciated over a long period $(27\mathrm{.}5$ years

for residential properties$).$

Cost segregation identifies and separates the building's components into different

categories with shorter depreciation periods. These categories typically include:

Land $($not depreciable$)$

Building structure $(27\mathrm{.}5$ years$)$

Personal property $(5$ or $7$ years$)-$ This can include items like appliances, cabinets, flooring,

etc.

By reclassifying certain building components as personal property, you can depreciate

them at a much faster rate, which translates to bigger tax deductions in the early years of

owning the duplex. This can significantly improve your cash flow.

Assume that you have purchased a duplex, and the following is information about the

purchase.

Total Purchase Price $$330,000$

Year Built $1983$

Total Acreage $0\mathrm{.}16$Acre

Land Value $$61,050$

Building Type Residential Total Building Square Feet $2283$Sq Ft$.$

Assume the marginal tax rate is $20\%,$ the purchase price minus the land value can be

depreciated over $27$ years $($Keep it simple$),$ straight$-$line depreciation is used, and the

after$-$tax risk adjusted discount rate is $6\%,$

If the purchase minus the land value can be depreciated over $27$ years $($Keep it simple$),$

calculate the following.