Cost segregation in Medford lets you depreciate parts of a rental or commercial building faster than the 27.5 or 39-year schedule the IRS applies to the structure. If you rent out a unit in a two-family you live in, own apartments near Tufts University’s Medford/Somerville campus, or are adding units through new construction or an accessory dwelling unit, the value of a study depends on details a generic guide skips.
As co-founder of Seneca Cost Segregation and a real estate investor myself, I’ve worked with owners of properties ranging from single-unit rentals to 120+ unit hotels and multi-million-dollar manufacturing plants. With owner-occupied multi-unit buildings, what we see consistently is the full purchase price landing on the depreciation schedule, when only the rented share of the building was ever depreciable.
Below I walk through how a study handles a Medford two-family, what changes for ADUs and new multifamily projects, a worked example on your federal and Massachusetts returns, and the mistakes worth avoiding before you order one.
TL;DR: What Medford Owners Should Know
- ●Only the rented share of an owner-occupied two-family is depreciable: in our example, $350,000 of a $700,000 building basis goes on the schedule.
- ●A study on that rental share adds about $23,856 in year-one federal tax savings in the hypothetical: that assumes the owner can use the loss under the passive activity rules, and the Massachusetts benefit starts at $438 as a timing advantage over the following years.
- ●Short-life property acquired and placed in service after January 19, 2025 gets 100% federal bonus depreciation: the building shell itself stays on 27.5 or 39 years.
- ●Massachusetts skips bonus depreciation: keep a separate state schedule from the first year, since your state basis and your gain at sale will differ.
- ●ADUs and new multifamily units start their own clock: each goes into service on its own date, and invoices broken out by trade give the study more to work with.
- ●Medford short-term rentals must be the operator’s primary residence: that brings the IRS rules for a home you also rent into play.
How a Cost Segregation Study Applies to Medford Property
A study sorts your building’s cost into the recovery periods the tax code assigns to each component.
Without one, the whole building sits on a single schedule: 27.5 years for residential rental property and 39 years for nonresidential real property. An engineering-based study pulls out the parts that recover faster:
- ●5-year property in rentals, such as stoves, refrigerators, carpets, and furniture
- ●7-year property in commercial space, such as office furniture and equipment
- ●15-year land improvements, such as shrubbery, fencing, and sidewalks outside the building
On the federal return, tangible property with a recovery period of 20 years or less that you acquire and place in service after January 19, 2025 qualifies for 100% bonus depreciation, according to IRS Publication 946. The 27.5 and 39-year structure does not qualify, so the reclassification is what creates the first-year deduction.
Under a written binding contract, your acquisition date is generally the latest of the signing date, the date the contract became enforceable, and the date any contingencies were met. When a Medford building went under binding contract before January 20, 2025 and was placed in service during 2025, its short-life components fall under the 40% rate instead.
Split the Owner’s Unit From the Rental Unit in a Medford Two-Family
Living in one unit and renting the other changes both the depreciable basis and the schedule you start from.
Depreciate Only the Rented Portion
IRS Publication 527 treats a property you partly rent as though it were two separate pieces of property, so only the rental share goes on the depreciation schedule. You divide shared costs by any reasonable method, and the number of rooms and the square footage are the two most common.
For an up-and-down two-family with units of equal square footage, the rental share is half of the building basis. A study then works inside that half, and our page on two-unit property studies covers how the components in each unit are counted.
Apply the 80% Test to the Whole Building
The recovery period for the structure depends on where the building’s rent comes from. Under Publication 946, a building is residential rental property when 80% or more of its gross rental income comes from dwelling units, and if you occupy part of it, the fair rental value of your own unit counts toward that income.
A two-family with both units used as homes meets the test, so the rental share runs on 27.5 years. The answer can change when a ground-floor space is leased to a business, so check the rent split with your CPA before the study assigns a schedule.
Short-Term Rentals Under Medford’s Primary-Residence Rule
Medford’s short-term rental regulation allows a short-term rental only in the operator’s primary residence. Renting a whole unit while you are away is capped at 90 days a year, and each unit needs an annual registration with the Building Department.
Those rules shape the tax side as well. Under Publication 527, you use a dwelling unit as a home when your personal use exceeds the greater of 14 days or 10% of the days it is rented at a fair price, and rental expenses above rental income on a home cannot offset your other income and carry forward instead.
For a Medford host renting part of their own residence, that limit caps what a study can do in year one. Our guide to cost segregation on a primary residence explains what a study can still accomplish when you live in the property.
Plan ADUs and New Construction Around the Study
New units give you something an acquisition rarely does: real construction costs, line by line.
ADUs Built Under the 2025 State Law
Since February 2, 2025, Massachusetts has allowed one accessory dwelling unit by right in single-family zoning districts, up to 900 square feet or half the floor area of the main home, whichever is smaller, according to the state’s ADU program page. An ADU can be a basement conversion, an addition, or a detached cottage or converted garage.
If you rent the ADU, Publication 527 lets you begin depreciating it when it is ready and available for rent, on its own date apart from the main house. Ask your contractor for invoices broken out by trade, since appliances and carpeting, site work, and the structure land in different recovery classes.
Multifamily Projects Near Wellington Station
Medford is a Rapid Transit Community under the state’s MBTA Communities law, and the City Council approved the Wellington Station Multi-Family Overlay District on December 12, 2023. The state housing office found the district compliant on September 30, 2024, so multifamily housing is allowed as of right in that overlay district near the station.
A study on a new building works from the contractor’s pay applications, schedule of values, and change orders instead of an allocation of a purchase price. What we find on ground-up projects is that the earlier our engineers see the cost breakdown, the cleaner the component list, and our page on new construction studies covers the timing.
Self-Constructed Property and the January 19, 2025 Date
For a building you construct, the bonus rate on its short-life components depends on when the project counts as acquired. Self-constructed property counts as acquired when physical work of a significant nature begins, and an IRS safe harbor lets you treat that date as the point when you have paid or incurred more than 10% of the total cost, with land and planning and design costs left out of the count.
A Medford project that began construction on or before January 19, 2025 under those rules does not get the 100% rate, and its rate then depends on the year the property goes into service. Projects that began later qualify for 100% on components placed in service after January 19, 2025, so keep the cost ledger and work records that show when construction started, and confirm with your CPA how separately purchased items are dated.
Model the Savings on a Medford Two-Family
Here is a hypothetical owner-occupied two-family, run through both returns.
- ●Purchase price of $1,000,000, with the owner moving into one unit and the second unit placed in service as a rental in February 2026
- ●30% of the price allocated to land, leaving a $700,000 building basis, and our guide on how to determine land value explains how that split is set
- ●Two units of equal square footage, so $350,000 of building basis belongs to the rental unit
- ●22% of the rental basis reclassified: $49,000 of 5-year property and $28,000 of 15-year land improvements
- ●A 32% federal rate and the 5% Massachusetts rate, with the owner able to use the loss
Without a study, the full $350,000 runs at the February first-year rate of 3.182%. With one, the federal column deducts the $77,000 through bonus depreciation and applies 3.182% to the remaining $273,000, while the Massachusetts column uses first-year rates of 20% for the 5-year property and 5% for the 15-year property.
The owner’s half of the building stays off both schedules entirely. That share becomes depreciable only if the owner later moves out and rents it.
Account for Massachusetts Depreciation Rules
The Massachusetts return uses the same study but applies its own timing to every reclassified component.
The State Return Skips Bonus Depreciation
Massachusetts does not adopt the federal bonus depreciation rules of IRC 168(k) for the personal income tax or the corporate excise. TIR 03-25 requires a separate Massachusetts schedule figured as if you had elected out of bonus depreciation, with the state basis of each asset adjusted every year.
We see this consistently when coordinating with CPAs on Massachusetts filings: the extra state schedule is easy to set up in the year of purchase and much harder to rebuild years later. The study gives your CPA each component’s cost and recovery period, so both schedules can be built from it at once.
When you sell, the Massachusetts gain is computed with the state depreciation, so the figure will differ from your federal gain. The Department of Revenue’s TIR 26-4, which reviews the One Big Beautiful Bill provision by provision, lists the new 100% expensing rule as not adopted for either tax.
Rates, the Surtax, and Section 179 Timing
Massachusetts taxes rental income at 5%, and income above $1,083,150 for 2025 or $1,107,750 for 2026 pays an additional 4% surtax. For an owner above the threshold, each dollar of state depreciation is worth up to 9 cents.
Under TIR 26-4, Massachusetts follows the higher federal Section 179 limits and the 168(n) qualified production property allowance only for tax years beginning on or after January 1, 2027. Land improvements such as paved parking and fences are never Section 179 property under Publication 946, and most property used to furnish lodging is excluded too, so ask your CPA which components, if any, Section 179 could reach.
Keep the Study Separate From Medford Property Tax Filings
A cost segregation study changes your income tax depreciation and has no effect on how Medford values or taxes the property.
For fiscal year 2026, Medford’s assessor’s office lists a residential rate of $8.63 per $1,000 of assessed value and a rate of $16.68 for commercial, industrial, and personal property. Assessed values reflect full and fair cash value as of January 1 each year.
The Board of Assessors also asks owners of commercial, industrial, mixed-use, and apartment buildings with four or more units for income and expense information. Answer those requests from your operating records, and keep the study’s component schedule for your income tax return, since its categories come from federal depreciation rules.
If you plan to file an abatement application, talk with your CPA before you hand the assessor any figure from the study.
What to Expect From a Seneca Study in Medford
At Seneca, here is what the cost segregation study process looks like for Medford properties.
Step 1: Engineer-Built Preliminary Estimate
Send us the purchase price, closing date, and how the building is used, including which unit you live in. Our engineering team builds a preliminary savings estimate from those details, and the estimate and proposal are free, with payment due only if you decide to proceed.
Step 2: Documents and Property Tour
We ask for the closing statement, any appraisal, and construction invoices or pay applications for new work, and our checklist of documents for a cost segregation study lists the rest. You choose an onsite tour or a virtual walkthrough, and many commercial owners pick onsite, while virtual tours suit most residential properties.
Step 3: Component Breakdown and Engineering Review
Our engineers identify everything that makes up the property, assign each item a cost and recovery period, and separate the rental share from any space you occupy. Every report goes through the same internal review, and our Head of Engineering signs off before it reaches you.
Step 4: Delivery to Your CPA
With timely collaboration on documents and access, we deliver studies in 5 to 10 business days, with real-time updates at each stage. Your CPA receives the component schedule needed for the federal return and for the separate Massachusetts schedule.
Avoid These Mistakes on a Medford Study
These errors cost owners deductions or create cleanup work at tax time, and each one has a fix.
- ●Depreciating the owner’s unit: Putting the whole two-family on the schedule overstates the deduction and invites an adjustment later. Depreciate the rental share only, allocated by rooms or square footage.
- ●Using the purchase price when you move out and rent your own unit: A unit converted from personal use starts depreciating at the lesser of its fair market value or its adjusted basis on the date of the change, so the original price can overstate it. Ask your CPA to fix that unit’s basis as of the conversion date before any study figures are applied to it.
- ●Carrying federal bonus onto the state return: Massachusetts disallows bonus depreciation, so one schedule used for both returns misstates state income every year until the sale. Have your CPA set up a separate Massachusetts schedule from the start.
- ●Lumping ADU or construction costs together: A single contract total gives the engineers less detail and leaves more cost in the 27.5-year class. Keep invoices and change orders broken out by trade.
- ●Waiting until after you file: A study finished after the return is filed may require an amended return or a Form 3115 accounting method change, depending on how many returns have been filed. Order it soon after you buy or finish construction so your CPA can use it on the original return.
Frequently Asked Questions
Below are the questions we hear most from Medford owners before they order a study.
Work With Seneca on Your Medford Property
Seneca focuses on cost segregation alone, and our team handles every study in-house, so you talk directly with the people doing the engineering, with no sales reps or commission markups in between. Our engineers have assessed 10,200+ properties, our record stands at zero IRS audits triggered or lost, and every report includes audit defense.
Every engagement includes a dedicated Project Manager, our Engineering team, and an Advisor, along with a full component breakdown of everything in the building. We also run Qualified Production Property (QPP) studies, and our work ranges from small Midwest single-family homes and multi-million-dollar mansions to self-storage, 120+ unit hotels, and office buildings over 40,000 square feet.
To see a first estimate for your own building, try our cost segregation calculator.
Conclusion
A Medford study comes down to getting the starting point right: the rental share of the building, the schedule the structure follows, and the dates new units go into service. From there, your federal return can take the reclassified components in year one, and your Massachusetts return spreads the same components over 5, 7, and 15 years.
Owner-occupied two-families, ADUs, and new multifamily projects each raise their own questions, so bring your CPA into the conversation before the study is ordered.
If you want a number for your property, run the calculator or ask for a free preliminary estimate, and our engineers will show you what a study would find before you commit.
