Cost Segregation in Sacramento, CA

California's state capital delivers the best cost seg fundamentals in the Golden State — affordable entry prices, the highest building-to-value ratios in CA, and recession-proof government employment that guarantees stable rental demand.

Population
2.4M
Median Home
$500K
Rent (3BR)
$2,400
Property Tax
0.69%
Annual Job Growth
25K+
Ranking
#1 CA Affordability
Overview

Value Props for Investors

STATE CAPITAL
75K+ State Government Jobs = Recession-Proof Demand

As California's state capital, Sacramento is home to 75K+ government workers with stable salaries, generous benefits, and guaranteed employment. Government tenants are among the most reliable in any market — low delinquency, long tenures, and consistent lease renewals.

BEST CA RATIOS
72% Building Value — Best Cost Seg Math in CA

Sacramento's affordable land prices create the highest building-to-value ratios among major California metros. Where LA only gives you 60% building and San Diego 62%, Sacramento's 72% means 20% more of your purchase price goes toward depreciable basis. This maximizes your cost seg ROI.

CA AT DISCOUNT
$500K Median — 41% Below LA, Full CA Benefits

Sacramento delivers California's Prop 13 tax protection, strong employment base, and tight housing market at prices that rival many non-coastal markets. Your $40K in Year 1 federal cost seg savings on a $500K property represents an 8% return on purchase price.

Tax Strategy

Cost Segregation & Tax Rules in Sacramento, CA

Understanding how federal and California state tax rules interact is critical to maximizing your cost segregation benefits in Sacramento.

Cost Seg Overview
State vs. Federal Rules
Tax Landscape
Typical Purchase
$500,000
Building Value
72%
28% land / 72% building
Cost Seg Range
25-38%
of building reclassified
Home Age
32 yrs
Built ~1992
What Gets Reclassified

A cost segregation study identifies building components that can be depreciated over 5, 7, or 15 years instead of the standard 27.5 or 39 years. In Sacramento, typical reclassification rates are 25-38% of building value.

Purchase Price Breakdown
Building 72%$360,000
Land 28%$140,000
Building Value Reallocation (with Cost Seg)
5-Year Property18%
$64,800
15-Year Property12%
$43,200
27.5 / 39-Year (Remaining)70%
$252,000

5 & 15-year components ($108,000 = 30% of building) are eligible for bonus depreciation in Year 1.

Overline Study Cost & ROI
Overline Study Cost
$499 - $2,000
Avg. ROI
10-40x

The math: A $500,000 property with 72% building value and 30% reclassification yields ~$39,960 in Year 1 federal tax savings at the 37% bracket — significantly more ROI than traditional studies costing $5,000-$10,000+.

Housing Stock Advantage

With a median build year of 1992, Sacramento's housing stock has identifiable components (HVAC, electrical, plumbing, landscaping) that are strong candidates for accelerated depreciation.

Non-Conformity — California DOES NOT allow bonus depreciation
California Bonus Depreciation Conformity

California does NOT conform to federal bonus depreciation under Section 168(k). For state tax purposes, you must use the regular MACRS depreciation schedule (5, 7, 15, or 39-year class lives) instead of claiming 100% in Year 1. This is the single most important tax planning consideration for CA investors.

What This Means for Sacramento Investors: Federal cost seg benefits still apply in full — you get 100% bonus depreciation on your federal return. However, for your California state return, reclassified components follow regular MACRS schedules. This means your state tax savings are spread over 5-15 years instead of Year 1. Given CA's 9.3-13.3% tax rate, this deferred state benefit is still very valuable.

Federal vs. CA Depreciation Timeline
PeriodFederal TreatmentCA State Treatment
Year 1100% bonus depreciation on reclassified componentsRegular MACRS first-year depreciation only (20% for 5-yr, 14.29% for 7-yr, 5% for 15-yr)
Years 2-5Standard MACRS on remaining basisRegular MACRS depreciation continues
Years 6-15Standard MACRS on 15-year componentsRegular MACRS depreciation continues for 15-year components
Section 179 Expensing
State ConformityLimited

California's $25,000 Section 179 limit is drastically lower than the federal $1.16M limit. This further limits Year 1 state deductions. Plan your cost seg strategy primarily around federal benefits.

Key Takeaway

A $750K property with a $487,500 depreciable basis and 30% cost seg reclassification yields ~$54,113 in federal tax savings in Year 1. California state savings of $0 in bonus depreciation Year 1 — but the regular MACRS state deductions over 5-15 years at 9.3-13.3% tax rates are worth ~$14,000-19,000 total. Federal savings alone justify the study.

Bottom Line

Federal savings are immediate and substantial. California state savings are deferred over MACRS class lives (5-15 years for most cost seg components). The high state tax rate (9.3-13.3%) means these deferred deductions are still very valuable — just not in Year 1. Plan accordingly.

Local Property Tax
0.69%
Sacramento effective rate
Transfer Tax
$1.10 per $1,000 of sale price (county) + city transfer taxes in some cities (LA: $5.50/$1,000)
State Income Tax
13.3%
Top Rate (Graduated — Highest in Nation)
Property Tax Details

Sacramento County effective rate of ~0.69% — among the lowest in the state. Prop 13 applies. Mello-Roos districts in newer developments can add 0.5-1.0%.

Assessment Methodology
MethodProp 13 — acquired value base with max 2% annual increase
Reassessment CycleAt acquisition, then max 2% annual increase
Assessment BodyCounty Assessor
Appeal WindowJuly 2 – November 30 (annual filing period)
Appeal Success Likelihood
Good
LowModerateGoodVery High

Prop 13 limits reassessment to change of ownership or new construction. In market downturns, temporary Prop 8 reductions are available when market value drops below the factored base year value. Los Angeles County alone processes 100K+ appeals in down markets.

Work with Overline — Our team helps Sacramento investors identify over-assessed properties and file tax appeals. A successful appeal can save thousands annually and compounds your cost seg savings.

Illustrative Example

Cost Seg Example for Sacramento, CA

This example assumes a purchase eligible for 100% bonus depreciation. All factors below are based on averages from our historical cost segregation studies for CA properties. To see your exact savings, run a property-specific cost seg analysis below.

Typical Sacramento, CA Property Details
$
50%95%
5%35%
2%25%
Total Reclassified30% of building
10%37%
Estimated Year 1 Tax Savings
Building Value$360,000
$500,000 x 72%
Normal Annual Depreciation$13,091
$360,000 ÷ 27.5 yr (residential)
5-Year Reclassified$64,800
15-Year Reclassified$43,200
Total Accelerated$108,000
30% of $360,000 building value
Federal Tax Savings (Year 1)$39,960
$108,000 x 37% bracket
Total Year 1 Tax Savings$39,960
8.3x normal annual deduction captured in Year 1

CA State Tax: Federal cost seg benefits still apply in full — you get 100% bonus depreciation on your federal return. However, for your California state return, reclassified components follow regular MACRS schedules. This means your state tax savings are spread over 5-15 years instead of Year 1. Given CA's 9.3-13.3% tax rate, this deferred state benefit is still very valuable.

Insurance & Risk

Insurance Landscape in Sacramento

Insurance costs directly impact your cash flow. Understanding Sacramento's risk profile helps you budget accurately and avoid coverage gaps.

Avg. Annual Premium
$1,500
Sacramento average
State Average
$1,800
22% below average
National Average
$2,300
for comparison
Key Risk Drivers
1
Wildfire risk in eastern foothills (El Dorado, Placer counties)
2
Flooding from Sacramento/American Rivers
3
Summer heat-related risks
Coverage Recommendations
Verify insurability BEFORE purchasing — some fire-prone areas have no private market options
California FAIR Plan as last resort, but it covers fire/wind only — you need a DIC (Difference in Conditions) policy for full coverage
Earthquake insurance (CEA or private) — expensive but essential in seismically active areas
Umbrella liability policy ($1M+) for rental properties
Cost Seg + Insurance Connection

California's insurance market is in flux due to wildfire risk. A cost seg study provides component-level building documentation that supports accurate replacement cost estimates — critical when carriers are scrutinizing coverage amounts. This documentation can help you negotiate adequate coverage and substantiate claims.

Revenue Comparison

STR vs. Long-Term Rental in Sacramento

Compare short-term (Airbnb) and long-term rental income for a typical Sacramento investment property.

Long-Term Rental
Monthly Rent (3BR)$2,400
Annual Gross$28,800
Vacancy Rate4%
Net Annual$27,648
Tenant StabilityGovernment employees, UC Davis faculty, and healthcare professionals provide stable, long-term tenancies with low delinquency
Depreciation Schedule27.5 years
Residential rental property
Tax TreatmentPassive Only
Losses can only offset passive income unless you qualify as a Real Estate Professional (750+ hrs/yr)
Short-Term Rental
Avg. Nightly Rate$165
Occupancy Rate65%
Annual Gross Revenue$39,146
Net Annual (after expenses)$27,402
Management20-25% of gross
Depreciation Schedule39 years
Classified as commercial / transient use property
Tax TreatmentActive Income Eligible
Losses can offset W-2 / active income if you document 100+ hrs of material participation and meet IRS criteria
Cost Seg + STR Loophole

Sacramento's government-dominated economy makes LTR the primary strategy. The $40K in Year 1 federal cost seg savings combined with $2,400/mo rent and 0.69% property tax creates one of the best after-tax return profiles in California.

Market Fundamentals

Economy & Housing Demand in Sacramento

Strong economic engines create stable rental demand. Here is what drives Sacramento's economy and housing market.

Median Income
$78,000
Rent-to-Income
28%
Healthy ratio
Vacancy Rate
3.8%
Pop. Growth
+0.8% annually
Major Employers
1
State of California (75K+)
2
UC Davis / Health (35K+)
3
Dignity Health (15K+)
4
Sutter Health (12K+)
5
Intel / Aerojet Rocketdyne (5K+)
6
SMUD (2K+)
Top Industries
Government
Healthcare
Education
Agriculture
Technology
Landlord & STR Rules
Landlord Friendliness
Tenant-Friendly (CA statewide rules apply)
Eviction Timeline
60-90 days
STR Regulation
Permitted with permit

Sacramento allows STRs with a city permit and TOT tax collection (12%). The market is primarily LTR-focused given the government tenant base, but STR demand exists from state capitol visitors, convention attendees, and Sacramento Kings events.

Why Invest Here

Sacramento is the best cost seg market in California. The 72% building-to-value ratio is the highest among CA's major metros, maximizing your depreciable basis. State government employment (75K+ jobs) provides the ultimate recession-proof tenant pool. At $500K median — 41% below LA and 36% below San Diego — Sacramento offers California demand drivers at near-national-average prices. Your $40K in Year 1 federal savings represents an 8% return on purchase price.

Where to Invest

Top Neighborhoods in Sacramento

#1
Elk Grove
Family-oriented suburb with top schools and diverse community
Price
$550K
Rent
$2,500
Yield
5.5%
Elk Grove Unified is Sacramento's most sought-after school district, driving fierce family rental demand. State government commuters fill the tenant pool. Newer construction (2000s+) with modern cost seg components.
$550K$2,5005.5%
Elk Grove Unified is Sacramento's most sought-after school district, driving fierce family rental demand. State government commuters fill the tenant pool. Newer construction (2000s+) with modern cost seg components.
Elk Grove Unified is Sacramento's most sought-after school district, driving fierce family rental demand. State government commuters fill the tenant pool. Newer construction (2000s+) with modern cost seg components.
#2
Rancho Cordova / Folsom
Eastern corridor with Intel, Aerojet Rocketdyne, and tech employment
Price
$520K
Rent
$2,400
Yield
5.5%
Intel's Folsom campus and Aerojet Rocketdyne provide tech/defense employment anchors. Folsom's excellent schools and amenities attract premium tenants. Good cost seg fundamentals with 1990s-2010s housing stock.
$520K$2,4005.5%
Intel's Folsom campus and Aerojet Rocketdyne provide tech/defense employment anchors. Folsom's excellent schools and amenities attract premium tenants. Good cost seg fundamentals with 1990s-2010s housing stock.
Intel's Folsom campus and Aerojet Rocketdyne provide tech/defense employment anchors. Folsom's excellent schools and amenities attract premium tenants. Good cost seg fundamentals with 1990s-2010s housing stock.
#3
Natomas / North Sacramento
Affordable entry near downtown with newer construction and growing amenities
Price
$450K
Rent
$2,200
Yield
5.9%
Natomas offers the most affordable entry to Sacramento with newer housing stock (2000s+). Proximity to downtown, Sacramento International Airport, and the regional sports complex drives demand. Best price-to-rent ratios in the metro.
$450K$2,2005.9%
Natomas offers the most affordable entry to Sacramento with newer housing stock (2000s+). Proximity to downtown, Sacramento International Airport, and the regional sports complex drives demand. Best price-to-rent ratios in the metro.
Natomas offers the most affordable entry to Sacramento with newer housing stock (2000s+). Proximity to downtown, Sacramento International Airport, and the regional sports complex drives demand. Best price-to-rent ratios in the metro.
#4
Midtown / East Sacramento
Walkable urban core with restaurants, bars, and state capitol proximity
Price
$600K
Rent
$2,700
Yield
5.4%
Sacramento's most desirable rental submarket. Walkability, dining scene, and state capitol proximity attract young professionals and government workers. Older housing stock (1920s-1960s) yields above-average cost seg reclassification.
$600K$2,7005.4%
Sacramento's most desirable rental submarket. Walkability, dining scene, and state capitol proximity attract young professionals and government workers. Older housing stock (1920s-1960s) yields above-average cost seg reclassification.
Sacramento's most desirable rental submarket. Walkability, dining scene, and state capitol proximity attract young professionals and government workers. Older housing stock (1920s-1960s) yields above-average cost seg reclassification.
Local Partners

Investor-Friendly Partners in Sacramento, CA

We are building a curated directory of top investor-friendly brokers, property management companies, and service providers in Sacramento, CA.

Investor-Friendly Brokers

Top real estate agents who specialize in investment properties and understand cost segregation, 1031 exchanges, and cash-flow analysis.

Coming Soon
Property Management

Vetted property managers who handle tenant screening, maintenance, and rent collection for both long-term and short-term rentals.

Coming Soon
Insurance Agents

Independent insurance agents who specialize in rental property coverage and can leverage cost seg data for accurate replacement cost estimates.

Coming Soon

Are you a broker, property manager, or insurance agent serving investors in Sacramento, CA?

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Frequently Asked Questions

Cost Segregation FAQ — Sacramento, CA

How much can I save with cost segregation in Sacramento, CA?

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On a typical $500K property in Sacramento, cost segregation can yield approximately $39,960 in Year 1 combined federal and state tax savings at the 37% bracket, with a study ROI of 627%. Overline studies cost $499-$2,000.

What is the property tax rate in Sacramento?

+

The effective property tax rate in Sacramento is approximately 0.69%. Sacramento County effective rate of ~0.69% — among the lowest in the state. Prop 13 applies. Mello-Roos districts in newer developments can add 0.5-1.0%.

Is Sacramento a good market for real estate investing?

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Sacramento is the best cost seg market in California. The 72% building-to-value ratio is the highest among CA's major metros, maximizing your depreciable basis. State government employment (75K+ jobs) provides the ultimate recession-proof tenant pool. At $500K median — 41% below LA and 36% below San Diego — Sacramento offers California demand drivers at near-national-average prices. Your $40K in Year 1 federal savings represents an 8% return on purchase price.

What is the average insurance cost for rental properties in Sacramento?

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The average annual homeowner insurance premium in Sacramento is approximately $1,500. Sacramento proper has relatively low insurance costs — the lowest of any major CA metro. Wildfire risk increases in foothill communities east of the metro. Flood risk exists near the rivers. Standard policies are readily available in the urban core.

What are the STR and landlord rules in Sacramento?

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Sacramento is rated "Tenant-Friendly (CA statewide rules apply)" for landlords. STR regulation: Permitted with permit. Eviction timeline: 60-90 days. Sacramento allows STRs with a city permit and TOT tax collection (12%). The market is primarily LTR-focused given the government tenant base, but STR demand exists from state capitol visitors, convention attendees, and Sacramento Kings events.

Who are the major employers in Sacramento?

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Major employers in Sacramento include State of California (75K+), UC Davis / Health (35K+), Dignity Health (15K+), Sutter Health (12K+), Intel / Aerojet Rocketdyne (5K+). Top industries: Government, Healthcare, Education, Agriculture, Technology.

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