A California REPS couple buys a $2.4M 12-unit apartment. The $1,495 study returns $195,569 in Year 1.

The property

Maya and Daniel Chen are a married couple in Sacramento. Daniel is a senior software engineer at a Bay Area startup earning $340,000 in W-2 wages plus RSUs. Maya left her tech career in 2024 to manage rentals full-time — she's a licensed agent, she runs the leasing herself, and she handles tenant issues directly. In early 2026 they closed on a 12-unit walk-up apartment building in midtown Sacramento for $2,400,000. Built 1987, mostly 1-bedrooms, 92% occupied at acquisition.

Their combined household income for 2026 will be roughly $485,000 — Daniel's wages plus a small profit on the building's first year. That lands them squarely in the 35% federal bracket on the top dollar of incremental income. California stacks 13.3% on top.

Why REPS changes everything

The single most important fact about this couple is that Maya qualifies for Real Estate Professional Status under IRC §469. She logs 1,400+ hours per year on her rental portfolio (they own three other small properties in addition to the new 12-unit) and has no other trade or business that consumes comparable time. Because they file jointly, her REPS designation makes all of their rental losses non-passive — including losses they would have been forced to suspend under the default passive-activity rules.

Without REPS, the Year-1 deduction from a cost segregation study on the 12-unit would suspend until they sold the building or generated other passive income to absorb it. With REPS, the deduction flows straight to Daniel's W-2 — sheltering roughly the entire top half of his salary from federal and state tax.

Without REPS, the same deduction suspends. With REPS, it shelters $200K of W-2 income. The math is identical; the timing — and the cash impact — is not. — Cost Seg Smart Research Team

The inputs

The 17% acceleration is lower than what an STR or office study produces because multifamily-at-scale tends to be heavy on the structural envelope (foundation, framing, façade, common-area roofing) and light on the per-unit FF&E that drives higher acceleration percentages. Bigger buildings dilute the 1245-asset share.

The math, step by step

The answer

Over a ten-year hold, the cumulative savings (Year-1 reclassified + 9 years of residual straight-line on the remaining ~$1.99M basis) lands at about $253,000 in their combined 48.3% bracket. The Year-1 dominates because bonus depreciation front-loads everything; the residual schedule is a slower trickle.

The more interesting financial number is what this means for the property's actual return. A 12-unit MF in Sacramento at this price point cash-flows roughly $90K–$120K annually depending on financing. The Year-1 tax savings of $197K therefore represent ~18–22 months of pre-tax cash flow, captured in a single April refund. From an IRR perspective, that compresses the first-year levered return into something resembling a tech-deal payback.

If the Chens were…

What this example skips

Four assumptions the headline math intentionally simplifies. Each is documented on the methodology page; recap here:

Land allocation. Sacramento commercial parcels run roughly 15–25% land per the Sacramento County assessor for buildings of this vintage. At the network's 20% default, depreciable basis would drop to $1.92M and the Year-1 deduction to $326,400 — still landing at a 105× ROI with state included. The headline overstates by ~20%; the worked study uses the actual assessor split.

NIIT exemption. Maya's REPS designation also makes the building's income non-passive, which exempts the Chens from the 3.8% Net Investment Income Tax on rental cash flow. That's worth about $3,500/year on this building's net rental income — small in Year 1 but compounds.

Suspended losses on prior properties. The Chens own three other rentals. If those have suspended passive losses from pre-REPS years, REPS now releases them — potentially adding meaningful additional Year-1 deduction beyond the new building's study. The calculator doesn't capture this because it doesn't see your prior tax returns; a CPA workup will.

Bonus on building improvements. If the Chens spend $200K on cap-ex in Year 1 (new roof, common-area renovation), those improvements get their own bonus depreciation treatment — separately from the acquisition cost seg study. The study fee on this page is for the acquisition only.