Cost Segregation for Student Housing (2026 Guide)

Student housing reclassifies higher than conventional multifamily, typically 28% to 38% of depreciable basis, for one structural reason. Purpose-built student housing is delivered furnished, and furniture is five-year property.

Add an amenity program that a conventional apartment building does not have, and the gap widens further.

Furnishings Are the Largest Difference

A 600-bed purpose-built community delivers 600 beds, desks, chairs, dressers, and mattresses, plus living room and common area furniture in every unit. At $2,200 to $3,400 per bed, that is $1,300,000 to $2,000,000 of five-year property.

Where furniture is acquired separately from the building, it is straightforwardly five-year property fully deductible under IRC Sec. 168(k). Where a community is acquired with furniture in place, the purchase price allocation must separate it, and a study is the mechanism.

Appliances in each unit follow the same treatment. A community with 180 units has 180 refrigerators, ranges, dishwashers, and in-unit laundry sets.

The Amenity Program

Student housing competes on amenities in a way conventional multifamily does not. Fitness centers, study lounges, gaming rooms, computer labs, tanning, coffee bars, and pools are standard rather than exceptional.

Fitness equipment, audiovisual systems, gaming and computer equipment, coffee and vending equipment, specialty flooring in fitness areas, and decorative lighting throughout the amenity program are five-year property.

Network infrastructure is substantial. A community guaranteeing high-speed connectivity to 600 residents carries a real fiber, switching, and access point investment, all of which is five-year property along with the conduit dedicated to it.

Access control is another meaningful item. Card and mobile credential systems, door hardware controllers, and camera coverage across a large site are equipment.

Residential Classification and By-the-Bed Leasing

Student housing is generally residential rental property on a 27.5-year schedule under IRC Sec. 168(e)(2)(A), which requires that 80% or more of gross rental income be from dwelling units.

By-the-bed leasing does not change this. Each apartment remains a dwelling unit, and leasing individual bedrooms within it is a leasing convention rather than a change in the character of the space.

The classification can shift where a property provides substantial services, such as meal plans or resident life programming resembling a dormitory operation. Communities operating under a university agreement with meal service should confirm the classification rather than assume it.

Site Work

Fifteen-year land improvements typically run 8% to 12%. Student communities carry heavy surface parking, often with structured or covered components, plus site lighting engineered for safety, extensive walkways, courtyards, pool decks, sport courts, bike infrastructure, and perimeter fencing.

Where the property includes a structured parking deck, the classification depends on whether it is freestanding or integrated into the building envelope. Freestanding decks are generally 15-year land improvements. The access control equipment within is five-year property in either case.

Worked Example: 180-Unit Community

An investor acquires a 180-unit, 552-bed purpose-built community for $47,000,000. Land is allocated at $4,600,000, leaving $42,400,000 depreciable.

The study identifies five-year property of $11,872,000 (28%), covering furnishings, appliances, amenity equipment, network infrastructure, access control, and finishes. Fifteen-year land improvements are $4,240,000 (10%). Structure is $26,288,000 (62%).

Reclassified basis of $16,112,000 is deductible in year one under IRC Sec. 168(k), plus $956,000 of structural depreciation, for approximately $17,068,000 against $1,541,818 on a straight-line schedule.

Turnover Creates Recurring Deductions

Student housing turns over almost entirely each August. Furniture is replaced on a three to five year cycle across the portfolio, and each replacement is new five-year property fully deductible when placed in service.

Just as important, the remaining basis in furniture and finishes removed can be written off through a partial asset disposition election under Treasury Regulation Sec. 1.168(i)-8. This requires component-level records, which is exactly what a study produces.

An operator replacing furniture in 60 units a year generates both a new deduction on the replacements and a disposition deduction on what was removed. Most operators claim only the first.

Passive Loss Considerations

Student housing is a rental activity under IRC Sec. 469 despite the intensive management. Leases run twelve months, average stays far exceed seven days, and the seven-day exception in Treasury Regulation Sec. 1.469-1T(e)(3)(ii)(A) does not apply.

That means the loss is passive unless the owner qualifies as a real estate professional or has passive income to absorb it. For institutional and syndicated ownership this is the normal expectation. For an individual operator, the aggregation election under Treasury Regulation Sec. 1.469-9(g) is generally necessary.

Frequently Asked Questions

Is student housing 27.5-year or 39-year property?

Generally 27.5-year residential rental property under IRC Sec. 168(e)(2)(A), since 80% or more of gross rental income comes from dwelling units. By-the-bed leasing does not change this. Properties providing meal service or dormitory-style programming should confirm rather than assume.

What percentage of basis reclassifies?

Typically 28% to 38%, higher than conventional multifamily. Furnishings alone can be $1.3 million to $2 million on a 600-bed community, and the amenity program adds fitness, network, access control, and audiovisual equipment a conventional building does not have.

Can I deduct furniture replacements every year?

Yes. Furniture placed in service is five-year property fully deductible under IRC Sec. 168(k). You can also write off the remaining basis in what you removed through a partial asset disposition election under Treas. Reg. Sec. 1.168(i)-8, which requires component-level records.

Does student housing qualify for the short-term rental exception?

No. Leases are typically twelve months and average customer use far exceeds seven days, so the exception in Treas. Reg. Sec. 1.469-1T(e)(3)(ii)(A) does not apply. The activity is a rental and losses are passive absent real estate professional status.

Is the parking deck a 15-year or 39-year asset?

It depends on integration. A freestanding parking structure is generally a 15-year land improvement. Parking integrated into the building envelope is typically part of the 39-year or 27.5-year structure. The access control equipment within is five-year property either way.

Cost Segregation for Student Housing: Furnishings, Amenities, and the 27.5 Year Question