# Cost segregation for a house hack or owner-occupied duplex When you live in part of the property you rent, only the rental part is depreciated. How the split works, what a study can do with it, and how the sale is taxed. ## Short answer A house hack, meaning a duplex, triplex or fourplex where you live in one unit and rent the others, or a house where you rent rooms, is two properties on one deed for tax purposes. The part you live in is your home, with no depreciation and, later, the home-sale exclusion. The part you rent is residential rental property, depreciated over 27.5 years, with the passive activity rules and recapture. Publication 527 requires you to divide expenses between the two by a reasonable method, such as square footage or rooms, and to depreciate only the rental part. A cost segregation study works on that rental part: it separates the rental share of the land, the land improvements and the personal property in the rented units. Everything it finds is scaled by the rental percentage. This article explains the split, what the study can do inside it, and how the sale is taxed part by part. It is general education, not tax advice. ## The split comes first | Element | Personal part | Rental part | |---|---|---| | The building | Not depreciated | Depreciated over 27.5 years | | Land | Not depreciated | Not depreciated | | Land improvements shared by both, such as a driveway or fence | Personal share not depreciated | Rental share is 15-year property | | Appliances and flooring in your unit | Personal | Not depreciated | | Appliances and flooring in rented units | — | 5-year property | | Operating expenses shared by both | Not deductible as rental expenses | Deductible according to the rental percentage | The rental percentage is set by a reasonable method. For a duplex with equal units, half. For a house where you rent two of five similar rooms and share the rest, a rooms or square-footage fraction. Document the method once and apply it consistently; it drives every later number. ## The residential test with an owner in the building A building is residential rental property if 80 percent or more of its gross rental income is from dwelling units. When you live in part of it, the fair rental value of your part is included in gross rental income for the test. An owner-occupied duplex passes; the building is 27.5-year property for its rental part. ## What a study can do in a house hack A study applied to the rental part does what it does for any rental, at the rental percentage: 1. **Land split.** Establish land by fair market value at purchase and apply the rental percentage to the depreciable remainder. 2. **Shared land improvements.** Driveways, walkways, fencing, drainage and grounds serve both parts; the rental share is 15-year property. 3. **Rented units' contents.** Appliances, carpeting, window coverings and furniture in the rented units are 5-year property in full, because they serve only the rental. Items in your own unit are not depreciated at all. 4. **Building systems.** Shared systems stay in the building; systems serving only the rented units, such as a dedicated appliance circuit, are classified on their function. For qualified property acquired after January 19, 2025, the rental part's 5- and 15-year property can be expensed under the permanent 100 percent bonus rule; the building is not qualified property. If the house was your home before you started renting part of it, the converted-residence rules apply to the rental part: basis is the lesser of adjusted basis or fair market value at conversion, and bonus depreciation is generally unavailable on the converted components. ## Personal use and the "used as a home" rule A unit rented to a tenant as their main home at fair rental is not your personal use, so the usual house hack does not trip the vacation-home limits. Renting a room in your own living space, or renting your unit to family below fair rental, can. If a dwelling unit is used personally for more than the greater of 14 days or 10 percent of the days it is rented at fair rental, it is treated as used as a home and rental deductions are limited to rental income. Keep the facts straight and tell your adviser exactly who lives where and on what terms. ## Using the loss The rental part's losses are generally passive. As an active participant you may deduct up to $25,000 of rental loss against other income, phased out between $100,000 and $150,000 of modified adjusted gross income. Many house hackers are early in their careers and below the phase-out, which is one reason the strategy is popular; above it, the loss is suspended unless you qualify as a real estate professional. ## Selling a house hack The sale is split the way the ownership was. - **Your part.** If you owned and used it as your residence for at least 24 months of the 5 years before sale, up to $250,000 of gain, or $500,000 for a married couple filing jointly, may be excluded on the residence part. - **The rental part.** Gain on the rental part is taxable. Gain equal to depreciation allowed or allowable after May 6, 1997 cannot be excluded in any case: depreciation on the section 1245 property a study identified is ordinary income, and the building's depreciation is unrecaptured section 1250 gain at up to 25 percent. - **Moving between parts.** If you move into a unit you previously rented, or rent a unit you previously lived in, the periods and basis of each part change, and nonqualified-use rules can affect the exclusion. Tell your adviser before you move, not after. Accelerating depreciation on the rental part accelerates deductions you can use only under the passive rules, and it adds to the part of the gain the exclusion will never cover. The trade is the same as for any rental, applied to a fraction. ## Records that make a house hack work - The purchase documents and the land split. - A written statement of the rental percentage and the method. - Leases showing the rented units are tenants' main homes at fair rental. - Invoices for appliances, flooring and site work, marked by unit. - A log of any change in who occupies which unit. ## What people ask on Reddit and other forums House hacking has its own corner of the "cost segregation reddit" threads on r/realestateinvesting and r/FirstTimeHomeBuyer. The searches that lead people to these threads are usually phrased "house hack depreciation", "owner occupied duplex depreciation" and "cost segregation house hack". **"Can I depreciate the whole duplex if I live in half?"** No. Only the rental part is depreciated. Divide by a reasonable method and document it. **"Can I do cost seg on my house hack?"** Yes, on the rental part. The land improvements are split by the rental percentage; the rented units' contents are entirely rental. **"Will I lose the home-sale exclusion?"** Not on your part, if you meet the ownership and residence tests. The rental part's gain is taxable, and depreciation after May 6, 1997 is never excludable. **"Does renting to my brother below market count?"** Below-fair-rental use by a relative is personal use, which can make the unit "used as a home" and limit deductions. Ask your adviser. ## Questions people also ask ### How do I split a duplex for depreciation? By a reasonable method such as square footage or rooms, applied consistently. Depreciate only the rental part; land is never depreciated. ### Is an owner-occupied duplex residential rental property? Yes for its rental part, if 80 percent or more of gross rental income, including the fair rental value of your unit, comes from dwelling units. ### Does bonus depreciation apply? To the rental part's 5- and 15-year property for qualified property acquired after January 19, 2025, not to the building, and generally not to components of a home you lived in before converting part of it to rental. ### What happens if I move out and rent both units? The former residence becomes converted rental property with the lesser-of basis at conversion and its own dates; the exclusion and nonqualified-use rules then apply to it on a later sale. ### Should I get a study on a fourplex I live in? Possibly: three of four units are rental, the site work is largely rental, and the contents of the rented units are entirely rental. Run the five checks with your adviser at the rental percentage. ## Sources - https://www.irs.gov/publications/p527 — IRS Publication 527 (2025), Residential Rental Property: Chapter 2 (residential rental property), Chapter 4 (renting part of property), Chapter 5 (personal use of dwelling unit). - https://www.irs.gov/publications/p523 — IRS Publication 523 (2025), Selling Your Home: eligibility test; depreciation after May 6, 1997; business or rental use of home. - https://www.irs.gov/publications/p946 — IRS Publication 946 (2025), How To Depreciate Property: Chapters 1 and 4. - https://www.irs.gov/publications/p925 — IRS Publication 925 (2025), Passive Activity and At-Risk Rules: special allowance. - https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-the-additional-first-year-depreciation-deduction-amended-as-part-of-the-one-big-beautiful-bill — IR-2026-06 (January 14, 2026), bonus depreciation guidance. ## Related reading - [Cost segregation for a primary residence turned rental](/articles/primary-residence-converted-to-rental) - [Cost segregation for a single-family rental](/articles/cost-segregation-single-family-rental) - [Cost segregation for multifamily and apartment buildings](/articles/cost-segregation-multifamily-apartments) - [Why a deduction is not a refund](/articles/why-a-deduction-is-not-a-refund) - [Land and building allocation](/articles/land-and-building-allocation) - [What Reddit asks about cost segregation, answered with sources](/articles/cost-segregation-questions-from-reddit) - [Find a practitioner in the NBCSS directory](/directory) --- Canonical: https://nbcss.org/articles/house-hack-and-owner-occupied-duplex Published: 2026-09-25 · Last content change: 2026-09-25 Not professional advice: general educational information from the National Board of Cost Segregation Specialist (NBCSS); not accounting, tax, legal, financial, investment or engineering advice. Verify with a licensed CPA, enrolled agent, attorney or other qualified adviser before acting.