Cost Segregation for Student Housing Properties
Student housing properties combine elements of multifamily and hospitality, creating substantial cost segregation opportunities. Fully furnished units, extensive amenities, technology infrastructure, and common area improvements can all be depreciated faster than the standard 27.5-year schedule. For student housing operators and investors, cost segregation is essential to optimizing after-tax returns.
How Cost Segregation Works for Student Housing
A cost segregation study for student housing identifies components that can be depreciated over 5, 7, or 15 years. Student housing properties typically have higher furnishing and amenity levels than traditional apartments.
Engineers analyze furnished units, study spaces, fitness centers, pools, and other amenities common to student housing. Each component is valued and assigned its proper depreciation life.
The result is a detailed allocation that your accountant uses to accelerate deductions. For existing properties, a catch-up adjustment captures all missed depreciation in the current year.
Why Student Housing Owners Overpay in Taxes
Student housing properties often achieve 25-35% accelerable percentages—higher than traditional apartments due to extensive furnishings and amenities. Without a study, all of this value is depreciated over 27.5 years.
Consider a $30 million student housing property: if 30% qualifies for acceleration, that's $9 million of deductions that can be taken faster. The cash flow impact for investors is substantial.
Many student housing operators treat their properties like standard multifamily. In reality, the furnished nature and amenity-rich design of student housing creates significantly more acceleration opportunity.
Property Components Commonly Reclassified
Student housing typically achieves 25-35% accelerable percentages. Purpose-built properties with full furnishing packages often achieve the highest results.
Timing, Retroactive Studies, and Cash Impact
For new student housing construction, conducting a cost segregation study at completion maximizes first-year deductions. The extensive furnishings make early study particularly valuable.
For existing properties, retroactive studies capture all missed depreciation. Operators who have owned student housing for years often find substantial catch-up deductions available.
Cash impact is immediate: reduced tax liability means more capital for property improvements, acquisitions, or investor distributions. Many student housing operators use cost segregation to improve investor returns.
Who Qualifies and Who Does Not
Good Candidates
- •Owners of purpose-built student housing
- •Off-campus housing investors and operators
- •Student housing REITs and investment funds
- •Developers completing new student housing construction
- •Operators completing renovation or repositioning projects
- •Properties with cost basis of $2 million or more
May Not Benefit
- •Unfurnished apartments marketed to students
- •Properties with minimal amenity investment
- •Owners planning immediate sale
- •Operators without taxable income
Common Mistakes Student Housing Owners Make
Treating furnished units like standard apartments
Furnishings are personal property with 5-7 year lives. In fully furnished student housing, this represents substantial value.
Undervaluing amenity investments
Fitness centers, pools, study spaces, and technology infrastructure are largely short-life property. These amenities drive student housing returns and tax savings.
Not studying furniture replacement cycles
When furniture is replaced (typically every 5-7 years), this creates new depreciable basis. Each replacement cycle should be analyzed.
Ignoring technology infrastructure
WiFi systems, media equipment, and technology buildouts are 5-year property. In tech-forward student housing, this is significant value.
Waiting for portfolio-level optimization
Each property can be studied individually. Waiting to batch properties only delays tax benefits.