Multifamily Apartment Buildings
Garden and mid-rise apartments that meet the 80% dwelling-unit test are 27.5-year residential rental property. A stand-alone clubhouse or leasing office on the same site is 39-year property in the IRS residential matrix. AmeriSouth is the caution case for aggressive apartment component lists.
Educational information, not tax advice.
Updated 2026-10-14
Key takeaways
- Dwelling buildings that meet §168(e)(2)’s 80% test are generally recovered over 27.5 years, straight line, mid-month.
- Publication 5653 Chapter 7.H states that a rental office or clubhouse building is nonresidential real property recovered over 39 years.
- The same matrix treats unit appliances, removable VCT, sheet vinyl, and carpeting as class 57.0 property for that industry pattern — not as a rule for every finish in every building.
- AmeriSouth XXXII kept most contested apartment items as §1250 structural components; a few outlets, surveillance items, and site items were allowed on those facts.
- Attached parking follows the residential building in that matrix; a stand-alone parking structure is 39-year property.
- Bonus depreciation as of 2026 can apply to qualified 5- and 15-year property acquired after January 19, 2025, not to the 27.5-year dwellings.
A multifamily project often shows several MACRS classes on one closing statement: 27.5-year dwelling buildings, a 39-year clubhouse or leasing office, 15-year site work, and shorter-lived appliances or furnishings. The building class comes first. Section 168(e)(2)(A) asks whether 80% or more of the building’s or structure’s gross rental income for the year is from dwelling units. Ground-floor commercial space can cause the whole building to fail that test if commercial rent exceeds 20% of gross rental income. Separate buildings on one parcel can have different answers.
Publication 5653 Chapter 7.H is the residential rental matrix. It says asset class 57.0 applies to most of the §1245 property used with residential rental property and that class 00.3 land improvements are 15-year property. Kitchen appliances are listed as 5-year; kitchen cabinetry, counters, and sinks as 27.5-year building. Dedicated appliance circuits and hook-ups are listed as 5-year; general kitchen wiring and plumbing as building. Removable VCT, sheet vinyl, and carpeting are treated as not permanently attached. Data cable and wiring that serve equipment that is not a structural component are listed as 5-year. Furnished-unit furniture and clubhouse, pool, and exercise furnishings are listed as 5-year.
Site items in that matrix include exterior pools, athletic courts, and playground equipment on land as class 00.3, 15-year property. Interior pools and courts in or attached to a residential building stay with the 27.5-year building. Attached parking structures, garages, and carports are 27.5-year. A stand-alone parking structure is 39-year nonresidential property. A site security gate is treated as a 00.3 land improvement. A false balcony is listed as 5-year; a real balcony as residential building. Offsite dedicated land improvements transferred to a municipality are listed as 27.5-year residential property.
AmeriSouth XXXII, Ltd. v. Commissioner, T.C. Memo. 2012-67, involved the 2003 purchase of the Garden House Apartments in Mesquite, Texas, for $10.25 million. A study divided the complex into more than 1,000 components and claimed about $3.4 million as 5- or 15-year property. The Tax Court kept most contested categories — including special HVAC, special plumbing, finish carpentry, millwork (cabinets and countertops), interior windows and mirrors, and special painting — as §1250 structural components of the apartment buildings. The court allowed, on those facts, certain refrigerator, range, and laundry outlets; cable, telephone, and data outlets; surveillance equipment; a sign flood light; and gate and irrigation items the Commissioner conceded as land improvements or personal property.
AmeriSouth is not a rule that millwork is never 5-year property. It is a memorandum opinion about one apartment complex, one study, and the evidence presented. The restaurant matrix later treats decorative millwork as personal property for that industry’s general fact pattern. Both results can be right on their facts. Copying AmeriSouth’s denied list as if every apartment millwork item always fails, or copying a restaurant decorative-millwork row onto apartments, is the error the ATG warns against when it says a matrix may not apply to other industries.
This page is educational information, not tax advice. Proposed Super Intelligence screens that group apartment components are explanatory only. Confirm building class, mixed-use income, and bonus acquisition dates with a CPA.
Building class before components
Getting 27.5 versus 39 wrong on the dwelling buildings dominates any later appliance adjustment. Apply the 80% test to each building or structure. Publication 527 and §168(e)(2) both count the rental value of any owner-occupied portion. A mixed-use podium with retail on the first floor is a mixed-use problem, not an apartment-matrix problem, until the income test is run.
A clubhouse or rental office that is its own building is nonresidential under Chapter 7.H even when residents use it every day. Furnishings in that building can still be personal property. The building shell is 39-year property.
Personal property versus structural components
Treas. Reg. §1.48-1(c) treats refrigerators and similar equipment as tangible personal property even when contained in a building. Treas. Reg. §1.48-1(e)(2) treats plumbing fixtures, electric wiring and lighting fixtures, partitions, and permanent floor coverings as structural components. The residential matrix’s dedicated-circuit and removable-flooring rows sit on top of those definitions. They do not repeal them.
Electrical distribution that serves specific equipment may be analyzed under the functional-allocation approach described in ATG Chapter 8.A and in Scott Paper and Hospital Corporation of America. The ATG says a properly applied design-load allocation of primary and secondary electrical distribution should not be challenged. It also says allocation of HVAC is not appropriate. Ceiling fans that are the primary light source stay with the building in Chapter 7.H. Backup generators that serve the residential buildings are listed as 27.5-year property.
Documentation
New construction studies can use the detailed engineering approach from actual cost records — contracts, AIA-style pay applications, change orders, drawings, and a reconciliation to total contractor cost. Acquisition studies usually estimate replacement cost new less depreciation and must value land first. The ATG cites AmeriSouth for the point that used-property studies should be performed by qualified appraisers.
Rent rolls, unit mix, commercial leases, site plans that distinguish attached and stand-alone parking, and photographs of flooring adhesives and amenity buildings are the records that make the 80% test and the matrix rows usable. A rule-of-thumb percentage applied to the purchase price is the approach the ATG tells examiners to view with caution.
Bonus depreciation as of 2026
Qualified property acquired after January 19, 2025 is eligible for 100% bonus depreciation under current law, as implemented by Notice 2026-11. The 27.5-year dwellings and the 39-year clubhouse are not qualified property. Five-year appliances, furnishings, and qualifying data cabling, and 15-year site work, can be if the other §168(k) tests are met. Used property can qualify when the taxpayer did not previously use it and the purchase is not from a related party under the §179(d) tests.
QIP does not apply to improvements of residential rental buildings. A later interior improvement of the 39-year clubhouse may be QIP if §168(e)(6) is met. Binding contracts signed on or before January 19, 2025 keep the prior phase-down. This is educational information, not tax advice.
What AmeriSouth does and does not hold
The court evaluated structural components against the apartment buildings in front of it. It rejected “special plumbing” that was ordinary apartment plumbing, millwork that was cabinets and counters, and finish carpentry that was molding, paneling, and built-in shelving. It allowed outlets whose layout showed they served specific appliances or communications equipment, and it accepted conceded site and surveillance items.
Do not read the opinion as a nationwide ban on 5-year millwork, and do not read Chapter 7.H as a nationwide grant of 5-year treatment for every carpet and every dedicated circuit. Both sources are fact-specific tools. A CPA and, where used, an engineer still have to match the documents to the property.
Sources
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- 2IRS Publication 5653 — Cost Segregation Audit Techniques Guide (rev. 2-2025)(opens in a new tab)
Written for IRS examiners. The guide states it is not an official pronouncement of law and cannot be cited as authority. It predates the July 2025 law.
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