Single-Family Rental Properties
A house held out for rent is usually 27.5-year residential rental property when the §168(e)(2) dwelling-unit test is met. The IRS residential rental matrix then separates appliances, some floor coverings, and site work from the dwelling itself. This page is educational information, not tax advice.
Educational information, not tax advice.
Updated 2026-10-14
Key takeaways
- A building is residential rental property if 80% or more of that year’s gross rental income is from dwelling units, as defined in §168(e)(2)(A).
- A dwelling unit is a house or apartment used for living accommodations, but not a unit in a hotel, motel, or similar establishment where more than half the units are used on a transient basis.
- Publication 5653’s residential rental matrix treats kitchen appliances as §1245 class 57.0 property and kitchen cabinetry, counters, and sinks as part of the 27.5-year building.
- The matrix is examiner guidance for houses, condos, and apartments; it is not a statute and does not decide every house.
- As of 2026, 100% bonus depreciation under Notice 2026-11 applies to qualified property acquired after January 19, 2025 — not to the 27.5-year dwelling unless a shorter-lived component or other qualifying item is identified.
- A personal residence you occupy is not depreciable. Mixed personal use and short-term lodging need CPA review.
Section 168(e)(2)(A) defines residential rental property as a building or structure from which 80% or more of the gross rental income for the year is rental income from dwelling units. A dwelling unit is a house or apartment used to provide living accommodations. Units in a hotel, motel, or other establishment more than one-half of whose units are used on a transient basis are not dwelling units. If the taxpayer occupies part of the building, the rental value of that portion is included in gross rental income for the test. When the test is met, §168(c) assigns a 27.5-year recovery period, straight line, with the mid-month convention. Land is never depreciable.
A single-family house held out for rent is the simplest residential fact pattern the Code contemplates. Publication 527 (2025) restates the same dwelling-unit definition and lists typical rental classes: appliances, carpets, and furniture used in rental property are shown as 5-year GDS property, and roads, shrubbery, and fences as 15-year property. Those Publication 527 rows are class-life illustrations, not a finding that every carpet or fence on every lot is 5- or 15-year property.
The February 2025 Cost Segregation Audit Techniques Guide added Chapter 7.H for residential rental property and says the matrix covers a house, condo, or apartment. It treats kitchen appliances — range, refrigerator, dishwasher, microwave — as §1245 property in asset class 57.0. Kitchen cabinetry, counters, and sinks stay with the §1250 residential building. Dedicated appliance branch circuits (for example a 220-volt range or dryer circuit) and dedicated appliance plumbing hook-ups are listed as 5-year; general kitchen wiring and plumbing stay with the building. That split is examiner guidance for a general residential fact pattern. It is not a rule that every outlet behind a refrigerator is 5-year property in every house.
Treas. Reg. §1.48-1(e)(2) lists walls, floors, permanent coverings, plumbing fixtures, electric wiring and lighting fixtures, and components of a central heating or air-conditioning system as structural components. Treas. Reg. §1.48-1(c) lists refrigerators among items that can be tangible personal property even when attached to a building. Cost segregation for a rental house is the work of applying those definitions, the statute, and the residential matrix to the actual construction, not of applying a marketing percentage.
AmeriSouth XXXII, Ltd. v. Commissioner, T.C. Memo. 2012-67, involved an apartment complex, not a single house. The Tax Court classified most contested millwork, finish carpentry, and similar items as §1250 structural components of those apartments. The opinion is fact-specific. It is not a holding that millwork is never 5-year property, and it is not a holding that every appliance circuit is 5-year property. A house study that copies an apartment component list without evidence is asking for the same result.
This article is educational information, not tax advice. CostSeg SI’s proposed Super Intelligence workflow is explanatory only and is not a live classification product. A CPA should confirm the dwelling-unit test, personal-use allocation, and any bonus-depreciation acquisition date before a return is filed.
What the residential matrix reviews in a house
Chapter 7.H treats removable VCT, sheet vinyl, and carpeting as not permanently attached and lists them as §1245 class 57.0 property for that industry pattern. Permanently affixed wood, ceramic, or similar coverings stay with the building under Treas. Reg. §1.48-1(e)(2). Ceiling fans that are typically the primary light source are listed as 27.5-year building. Built-in stove hoods are listed as building. Furnished-unit furniture is listed as 5-year property. Window treatments are not given a separate matrix row; they are analyzed under the same personal-property versus structural-component tests.
None of those rows decides a particular house. The ATG states that each matrix reflects general fact patterns for one industry and may not apply elsewhere, and that the guide is not an official pronouncement of law. A study still has to show how the item is attached, what it serves, and how cost was determined.
Site work, land, and land improvements
Driveways, sidewalks, and fencing are typically reviewed as class 00.3 land improvements, recovered over 15 years under the GDS period reproduced in Publication 946 Appendix B. Exterior patios and similar site paving are analyzed the same way when they are depreciable improvements rather than land. Publication 946 and the auto-dealership and residential matrices distinguish landscaping that would be destroyed with a related depreciable asset (often 00.3) from landscaping that would remain and is therefore non-depreciable land.
Attached garages and carports on a residential rental property are listed in Chapter 7.H as §1250 residential rental property. A stand-alone parking structure is listed as 39-year nonresidential real property, with a cross-reference to ATG Chapter 8.B. A detached shed or workshop is classified by what it actually is — a building, a land improvement, or equipment housing — not by the house’s street address.
Documentation a quality study uses
Publication 5653 Chapter 4 lists the elements of a quality study: a described methodology, appropriate documents, a site visit with photographs, legal analysis for §1245 versus §1250, quantity take-offs, reconciliation to actual cost, and treatment of indirect costs. For a purchased house the guide expects land to be valued first at highest and best use, and it says studies on used property should be performed by qualified appraisers, citing AmeriSouth. Forcing estimates to the purchase price with a pro-rata step-up is not an acceptable method.
Useful house-level records include the closing statement, an allocation that separates land from improvements, any appraisal, a rent roll or listing that shows when the property was ready and available for rent, photographs of finishes and site work, and invoices for appliances and replacements. Publication 527 treats a rental house as placed in service when it is ready and available for rent, even if a tenant has not yet moved in.
Bonus depreciation timing as of 2026
As of October 2026, Public Law 119-21 and IRS Notice 2026-11 provide that qualified property acquired after January 19, 2025 and placed in service after that date is eligible for a 100% additional first-year depreciation allowance. Qualified property generally includes MACRS property with a recovery period of 20 years or less. The 27.5-year dwelling is not qualified property. Five-year appliances or furniture and 15-year land improvements can be, if they meet the used-property, related-party, and other §168(k) rules. Property acquired under a written binding contract entered into on or before January 19, 2025 is treated as acquired on that contract date and stays on the earlier phase-down.
Qualified improvement property under §168(e)(6) is an interior improvement to a building that is nonresidential real property, placed in service after the building was first placed in service. Because the statute requires nonresidential real property, QIP does not apply to a residential rental house. Proposed Super Intelligence screens that flag bonus eligibility are explanatory only. Elections and acquisition-date judgments belong with the taxpayer’s CPA.
Fact-specific limits
Short-term or vacation use can raise the transient-unit exclusion in §168(e)(2)(A)(ii). If more than one-half of the units in the establishment are used on a transient basis, those units are not dwelling units. A single house used only for weekend guests is a facts question, not a matrix row. Mixed personal use, a conversion from a former residence, and a home office inside a rental also require allocation under the rules your CPA applies.
Do not treat the residential matrix as a list of items that “are” 5-year property in every rental house. Do not invent a typical reclass percentage for single-family studies. Educational information on this page is not tax advice.
Sources
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- 3IRS 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.
- 4IRS Publication 946 — How To Depreciate Property (2025)(opens in a new tab)
Appendix B reproduces the Rev. Proc. 87-56 class lives.
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