If you own a two- or three-family home, a converted mill unit, or a commercial building in Lowell, cost segregation is the engineering study that pulls part of your purchase price out of 27.5- or 39-year depreciation and into 5-, 7-, and 15-year classes. The federal deduction works the same way it does anywhere in the country. Massachusetts handles the state side on its own terms, and that difference shapes how much the study is worth to you in year one.
As co-founder of Seneca Cost Segregation and a real estate investor myself, I’ve worked with owners in states that keep their own depreciation rules, and Massachusetts is one where the federal and state numbers from the same study start to diverge in the first year. Our engineers have assessed 10,200+ properties, and in a city like Lowell the details that decide a study’s value are owner-occupied multifamily, older brick buildings, and what the state return will actually show.
Below, I cover what a study moves, how Lowell’s building types change the work, how Massachusetts depreciation plays out year by year, when to order a study, and how to choose a provider.
TL;DR: Cost Segregation in Lowell
- ●Your federal deduction can land in year one: components identified by a study on a Lowell property acquired and placed in service after January 19, 2025 can take 100% bonus depreciation.
- ●Massachusetts spreads the same deduction out: the state disallows bonus depreciation, so $100,000 of 5-year property yields a $20,000 state deduction in year one under the IRS half-year table.
- ●Living in one unit still leaves the rest depreciable: on an owner-occupied two- or three-family home, the rented units carry their share of the study.
- ●Mill conversions need the study and the historic credit planned together: personal property and site work fall outside the credit, which is where a study’s shorter classes come from.
- ●A building you bought years ago still qualifies: a look-back study captures missed depreciation through Form 3115 without amending prior returns.
- ●The study is federal work, so location is not the test: method, documentation, and audit defense decide quality.
What a Cost Segregation Study Does for a Lowell Property
A study replaces the single building line on your depreciation schedule with an itemized list of components, each assigned the recovery period the tax code gives it.
How much moves depends on the building. On a ground-up 35-unit townhome community we studied in Oregon, 19.77% of the basis landed in 5-year property and 3.99% in 15-year property, as our multifamily case study shows; a 19th-century brick building in Lowell will produce its own mix.
Components That Move to 5, 7, and 15 Years
The categories stay the same across property types, and the inventory inside each one changes from building to building.
- ●5-year personal property: appliances, carpeting, decorative lighting, and certain dedicated electrical and plumbing in residential and commercial space.
- ●7-year property: furniture, fixtures, and equipment in commercial uses such as offices and retail.
- ●15-year land improvements: paving, sidewalks, fencing, landscaping, site lighting, and exterior drainage.
- ●27.5- or 39-year structure: foundations, framing, the roof, windows, and the building’s general mechanical systems stay on the long schedule.
Bonus Depreciation on Lowell Purchases After January 19, 2025
The One Big Beautiful Bill permanently restored 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025, and the acquisition date is the date of the binding written contract. Our overview of bonus depreciation under the Big Beautiful Bill covers the transition rates for property placed in service in 2024 and early 2025.
On a Lowell property that meets the dates, every 5-, 7-, and 15-year component the study identifies can be deducted on your federal return in the year the property is placed in service.
How Lowell’s Property Types Change the Study
Lowell grew up around water-powered textile mills, with the National Park Service counting about 40 of them along the Merrimack by the 1850s, and the building stock still reflects that history.
Owner-Occupied Two- and Three-Family Homes
If you live in one unit of a multifamily home and rent the others, IRS Publication 527 treats the building as two properties for tax purposes: you divide expenses between the rental part and the personal part, and you depreciate only the rental part.
Publication 946 adds a helpful rule for the building’s class. When you occupy part of a building, the fair rental value of your unit counts toward gross rental income, so the 80% dwelling-unit test for 27.5-year residential rental property still works on a home where every unit is an apartment.
What we find on owner-occupied multifamily is that the allocation question comes up before the engineering one. Your CPA needs to know which share of the shared systems belongs to the rented units, and our guide to cost segregation on a triplex walks through how a study handles a three-unit building.
Converted Mill Buildings and the Historic Rehabilitation Credit
If you are converting or rehabilitating space in one of Lowell’s mill buildings, a historic rehabilitation credit may be part of the financing. Under section 47 of the Internal Revenue Code, the federal credit is 20% of qualified rehabilitation expenditures, taken in equal shares over five years starting with the year the building is placed in service.
Qualified rehabilitation expenditures must be depreciated on the straight-line method, and the IRS’s Rehabilitation Tax Credit Audit Techniques Guide says personal property is excluded from them. When an examiner finds personal property in the credit basis, the guide has those costs removed and depreciated, with accelerated methods allowed.
The National Park Service, which certifies historic rehabilitation work, also lists landscaping, fencing, paving, sidewalks, and parking lots as ineligible for the credit. Those are the same 5- and 15-year categories a cost segregation study isolates, so on a mill conversion the study is how the line between credit basis and accelerated property gets drawn.
Downtown Mixed-Use Buildings
A building with storefronts below and apartments above is classified by where its rent comes from. If 80% or more of gross rental income comes from dwelling units, the structure is 27.5-year residential rental property; below that, the whole structure is 39-year nonresidential property.
The study still breaks out the retail fit-out, the apartment finishes, and the site work separately, so each piece lands in its own class whichever schedule the structure follows.
How Massachusetts Treats Depreciation From a Study
The federal and state returns start from the same study and then apply different rules, so here are the figures that frame a Lowell owner’s state picture.
The Lowell rates come from the City of Lowell Assessors, and the state rates from the Department of Revenue’s Massachusetts tax rates page.
No Bonus Depreciation on the Massachusetts Return
Massachusetts law disallows the federal bonus deduction for personal income tax purposes, and the state’s 2025 partnership return instructions cite MGL chapter 62, section 2(d)(1)(N) and require a separate state depreciation schedule. The Department of Revenue’s TIR 03-25 tells taxpayers to figure state depreciation as if they had elected out of bonus depreciation.
We see this framing consistently from out-of-state investors and some CPAs: the assumption that a large federal first-year deduction shows up on the state return too. The reality of how Massachusetts works is that the same reclassified components are still depreciated over 5, 7, and 15 years on the state side, so the state benefit arrives over several returns.
Section 179 and QPP Limits for 2025 and 2026
Massachusetts did not adopt the 2025 federal increase to the section 179 expensing limits for tax years 2025 and 2026. On the state return, the limit is $1,250,000 with a phase-out beginning at $3,130,000.
The same instructions say Massachusetts does not adopt the federal 100% allowance for qualified production property under section 168(n) for 2025 and 2026. If you are building or buying manufacturing space in Lowell that qualifies federally, expect the state return to recover that cost over time rather than in year one.
How the State Deduction Plays Out Year by Year
The table follows $100,000 of 5-year property identified by a study and placed in service in 2026, using the half-year convention rates from IRS Table A-1.
Total deductions match over time on both returns. For an owner whose income crosses the 4% surtax threshold, the state rate on the top slice of income rises to 9%, so the year a state deduction lands carries more weight.
A Different Massachusetts Basis When You Sell
TIR 03-25 also requires the state basis of each asset to be adjusted every year using Massachusetts depreciation. When you sell, the gain or loss on your Massachusetts return is computed from that state basis, so it will differ from the federal figure.
How to Time a Study on a Lowell Property
The best year to order a study depends on whether the property is newly acquired, newly renovated, or already on your books.
In the Year You Buy or Finish a Renovation
A study completed before you file the return for the year the property is placed in service lets your CPA build the depreciation schedule correctly from the start. Renovations follow the same logic, and our guide on ordering a study before or after a renovation covers the sequencing for buildings that are about to be gutted or refit.
Look-Back Studies on Buildings You Already Own
If you have owned a Lowell rental for years on straight-line depreciation, a study can still capture the depreciation you missed. The IRS allows a look-back study on property placed in service as far back as 1987, filed with Form 3115 in the current year, with the missed depreciation taken as a single section 481(a) catch-up deduction and no amended returns.
Our article on the cost segregation look-back study covers how the catch-up works on your return and how far back you can reach.
How Seneca Runs a Study for Lowell Owners
At Seneca, here is what the cost segregation study process looks like for Lowell properties.
Free Preliminary Estimate From Your Property Details
You send us the purchase price, placed-in-service date, and basic facts about the building, including whether you live in one of the units or claimed a historic credit. Our engineering team builds a free preliminary savings estimate and proposal from that information, and you pay only if you decide to move forward.
Onsite or Virtual Walkthrough
You choose whether our engineers tour the property in person or by video. Many commercial owners choose an onsite visit, a virtual tour works well for most residential properties, and our page on virtual property tours explains how the remote option documents a building.
Engineering Report, Sign-Off, and CPA Handoff
Our engineers break the property into every component it contains, each with a cost and a recovery period, so your CPA can carry the same detail to the federal schedule and the separate Massachusetts schedule. Our Head of Engineering signs off on every study, you get real-time updates as it moves through each stage, and with timely collaboration from you we deliver in 5 to 10 business days.
Mistakes Lowell Owners Make With Cost Segregation
Each of these is avoidable once you know where the Massachusetts and Lowell specifics sit.
- ●Depreciating the unit you live in: only the rented portion of an owner-occupied home is depreciable; ask for a study that allocates shared systems between rental and personal use.
- ●Assuming Massachusetts mirrors the federal deduction: the state disallows bonus depreciation, so model state cash flow on the MACRS schedule rather than the federal first-year figure.
- ●Leaving personal property or site work in the historic credit basis: those costs do not qualify for the credit, and an examiner will move them out; have the study and the credit calculation reconciled before filing.
- ●Using one basis for both returns at sale: Massachusetts gain is computed from the state basis; keep both schedules current from the first year.
- ●Skipping a study because the purchase was years ago: a look-back study recovers missed depreciation in the current year; ask for an estimate before ruling it out.
- ●Choosing a provider by zip code: the study is federal tax work documented to IRS standards; judge the method and the deliverable instead.
How to Choose a Cost Segregation Provider for a Lowell Property
These are the criteria that separate a defensible study from a quick estimate.
- ●Engineering-based method: the study should follow the approach the IRS describes in its Cost Segregation Audit Techniques Guide, with component-level costs and supporting documentation.
- ●A deliverable built for two returns: your CPA should receive detail fine enough to run the federal schedule and the Massachusetts schedule from the same report.
- ●Experience with historic credit projects: on a mill conversion, the provider should separate qualified expenditures from accelerated property in a way your credit consultant can use.
- ●Onsite or virtual by your choice: the inspection method should fit the property and should not be dictated by the firm’s travel budget.
- ●Audit defense included: support if the IRS questions the study should be part of the engagement.
- ●Clear pricing up front: you should see the fee and the projected benefit before you commit.
Frequently Asked Questions
Below are the questions we hear most from Lowell owners and their CPAs about cost segregation.
Why Lowell Owners Choose Seneca for Cost Segregation
Seneca does cost segregation and nothing else, and our in-house engineering team handles every study, so you and your CPA deal directly with the people doing the work, with no sales middlemen relaying messages. Every report breaks the property into all of its components, we also perform Qualified Production Property (QPP) studies, and our Head of Engineering signs off on each one before it reaches your CPA.
Each Lowell engagement pairs you with a dedicated Project Manager, our Engineering team, and an Advisor, and you see real-time progress as the study moves from intake to final report. We have assessed 10,200+ properties, from small single-family rentals to multi-million-dollar manufacturing plants, 120+ unit hotels, and office buildings over 40,000 square feet, and audit defense comes with every study, with zero IRS audits triggered or lost.
To see what a study could do for your building, start with our cost segregation calculator.
Conclusion
Cost segregation in Lowell gives you the same federal deduction available anywhere in the country, with 100% bonus depreciation on qualifying property acquired and placed in service after January 19, 2025. The Lowell-specific work is in the details: allocating an owner-occupied home, coordinating with a historic credit on a mill conversion, and keeping a separate Massachusetts schedule from the first year.
Get those pieces right and the study works for you on both returns, with the federal benefit up front and the state benefit spread over the recovery period.
If you own or are buying property in Lowell, request a free estimate or run your numbers through the calculator, and our engineers will show you what a study could reclassify.
