Cost Segregation in San Diego, CA

The nation's largest military city meets a world-class biotech hub — San Diego's defense-and-science economy provides exceptionally stable rental demand, while high property values generate substantial federal cost seg savings.

Population
3.3M
Median Home
$780K
Rent (3BR)
$3,100
Property Tax
0.73%
Annual Job Growth
35K+
Ranking
Biotech & Military
Overview

Value Props for Investors

MILITARY STRONGHOLD
Naval Base SD + Camp Pendleton: 90K+ Personnel

San Diego has the largest military concentration on the West Coast. Naval Base San Diego, Camp Pendleton, and MCAS Miramar combine for 90K+ active duty and civilian personnel. Military BAH provides government-guaranteed rent — the ultimate income stability.

BIOTECH CORRIDOR
Qualcomm, Illumina, General Atomics + UCSD

San Diego's Torrey Pines corridor is one of the world's premier biotech clusters. Qualcomm, Illumina, and 1,200+ life science companies employ tens of thousands of PhD-level professionals earning $120K-$250K. These are among the highest-quality tenants in any U.S. market.

FED SAVINGS POWER
$53.7K Federal Savings — CA Non-Conformity Explained

While CA does not allow bonus depreciation at the state level, your $53.7K in federal Year 1 savings is among the largest in the country. State MACRS deductions of $14-18K still accrue over 5-15 years at CA's 9.3-13.3% rate. The federal benefit alone provides a 667% ROI on study cost.

Tax Strategy

Cost Segregation & Tax Rules in San Diego, CA

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

Cost Seg Overview
State vs. Federal Rules
Tax Landscape
Typical Purchase
$780,000
Building Value
62%
38% land / 62% building
Cost Seg Range
25-38%
of building reclassified
Home Age
35 yrs
Built ~1989
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 San Diego, typical reclassification rates are 25-38% of building value.

Purchase Price Breakdown
Building 62%$483,600
Land 38%$296,400
Building Value Reallocation (with Cost Seg)
5-Year Property18%
$87,048
15-Year Property12%
$58,032
27.5 / 39-Year (Remaining)70%
$338,520

5 & 15-year components ($145,080 = 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 $780,000 property with 62% building value and 30% reclassification yields ~$53,680 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 1989, San Diego'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 San Diego 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
0.73%
San Diego 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

San Diego County effective rate of ~0.73%. Prop 13 caps protect long-term holders. A $780K purchase today will have a stable tax base increasing only 2%/year.

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 San Diego 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 San Diego, 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 San Diego, CA Property Details
$
50%95%
5%35%
2%25%
Total Reclassified30% of building
10%37%
Estimated Year 1 Tax Savings
Building Value$483,600
$780,000 x 62%
Normal Annual Depreciation$17,585
$483,600 ÷ 27.5 yr (residential)
5-Year Reclassified$87,048
15-Year Reclassified$58,032
Total Accelerated$145,080
30% of $483,600 building value
Federal Tax Savings (Year 1)$53,680
$145,080 x 37% bracket
Total Year 1 Tax Savings$53,680
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 San Diego

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

Avg. Annual Premium
$1,800
San Diego average
State Average
$1,800
22% below average
National Average
$2,300
for comparison
Key Risk Drivers
1
Wildfires (eastern hills and canyons)
2
Earthquakes (Rose Canyon Fault, etc.)
3
Coastal erosion
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 San Diego

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

Long-Term Rental
Monthly Rent (3BR)$3,100
Annual Gross$37,200
Vacancy Rate4%
Net Annual$35,712
Tenant StabilityMilitary BAH, biotech professionals, and UCSD faculty/researchers provide exceptionally stable demand 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$220
Occupancy Rate72%
Annual Gross Revenue$57,816
Net Annual (after expenses)$40,471
Management25-30% 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

San Diego's tiered STR system requires planning, but Tier 2 and Tier 3 licenses are achievable. A $780K property generating $53.7K in federal cost seg savings plus $37-58K in rental income creates a $90-110K combined Year 1 benefit.

Market Fundamentals

Economy & Housing Demand in San Diego

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

Median Income
$89,000
Rent-to-Income
32%
Healthy ratio
Vacancy Rate
3.2%
Pop. Growth
+0.5% annually
Major Employers
1
Naval Base San Diego (50K+)
2
UC San Diego / Health (35K+)
3
Sharp HealthCare (18K+)
4
Qualcomm (13K+)
5
General Atomics (10K+)
6
Illumina (6K+)
7
Camp Pendleton (40K+)
Top Industries
Military & Defense
Biotech & Life Sciences
Healthcare
Technology
Tourism
Landlord & STR Rules
Landlord Friendliness
Tenant-Friendly
Eviction Timeline
60-90 days
STR Regulation
Permitted with STRO (Short-Term Residential Occupancy) license

San Diego allows STRs with a tiered license system. Tier 1 (mission beach): limited. Tier 2 (whole-home, primary): limited to 20 nights when unhosted, unlimited when hosted. Tier 3 (partial-home): unlimited. Tier 4 (whole-home, non-primary): limited licenses available by lottery. Research tier requirements before investing.

Why Invest Here

San Diego has the most stable demand drivers in California. Naval Base SD and Camp Pendleton provide 90K+ military personnel with guaranteed BAH. UC San Diego and the biotech corridor (Qualcomm, Illumina, General Atomics) add high-income tech/science tenants. Your $53.7K in Year 1 federal savings is substantial, and Prop 13 keeps property taxes locked low.

Where to Invest

Top Neighborhoods in San Diego

#1
Chula Vista / Otay Ranch
Fast-growing southern suburb with military family demand and newer construction
Price
$700K
Rent
$2,800
Yield
4.8%
Naval Base San Diego and shipyard workers drive strong rental demand. Otay Ranch master-planned communities offer newer construction with excellent cost seg components. More affordable than coastal San Diego.
$700K$2,8004.8%
Naval Base San Diego and shipyard workers drive strong rental demand. Otay Ranch master-planned communities offer newer construction with excellent cost seg components. More affordable than coastal San Diego.
Naval Base San Diego and shipyard workers drive strong rental demand. Otay Ranch master-planned communities offer newer construction with excellent cost seg components. More affordable than coastal San Diego.
#2
Oceanside / Vista
Camp Pendleton gateway with beach lifestyle and growing downtown
Price
$750K
Rent
$2,900
Yield
4.6%
Camp Pendleton's 40K+ military personnel create guaranteed demand. Oceanside's beach lifestyle attracts both military and civilian tenants. Redeveloping downtown adds appreciation potential.
$750K$2,9004.6%
Camp Pendleton's 40K+ military personnel create guaranteed demand. Oceanside's beach lifestyle attracts both military and civilian tenants. Redeveloping downtown adds appreciation potential.
Camp Pendleton's 40K+ military personnel create guaranteed demand. Oceanside's beach lifestyle attracts both military and civilian tenants. Redeveloping downtown adds appreciation potential.
#3
El Cajon / La Mesa
Affordable East County with diverse tenant base and older housing stock
Price
$650K
Rent
$2,600
Yield
4.8%
East County offers the most affordable entry to San Diego. Older housing stock (1960s-1980s) with renovations yields above-average cost seg reclassification. Strong renter demand from service workers and military families.
$650K$2,6004.8%
East County offers the most affordable entry to San Diego. Older housing stock (1960s-1980s) with renovations yields above-average cost seg reclassification. Strong renter demand from service workers and military families.
East County offers the most affordable entry to San Diego. Older housing stock (1960s-1980s) with renovations yields above-average cost seg reclassification. Strong renter demand from service workers and military families.
#4
Escondido / San Marcos
North County inland with Cal State San Marcos and growing tech presence
Price
$720K
Rent
$2,800
Yield
4.7%
Cal State San Marcos (17K students) and North County biotech growth drive diverse tenant demand. More affordable than coastal North County with similar quality of life.
$720K$2,8004.7%
Cal State San Marcos (17K students) and North County biotech growth drive diverse tenant demand. More affordable than coastal North County with similar quality of life.
Cal State San Marcos (17K students) and North County biotech growth drive diverse tenant demand. More affordable than coastal North County with similar quality of life.
Local Partners

Investor-Friendly Partners in San Diego, CA

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

Partner With Overline
Frequently Asked Questions

Cost Segregation FAQ — San Diego, CA

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

−

On a typical $780K property in San Diego, cost segregation can yield approximately $53,680 in Year 1 combined federal and state tax savings at the 37% bracket, with a study ROI of 667%. Overline studies cost $499-$2,000.

What is the property tax rate in San Diego?

+

The effective property tax rate in San Diego is approximately 0.73%. San Diego County effective rate of ~0.73%. Prop 13 caps protect long-term holders. A $780K purchase today will have a stable tax base increasing only 2%/year.

Is San Diego a good market for real estate investing?

+

San Diego has the most stable demand drivers in California. Naval Base SD and Camp Pendleton provide 90K+ military personnel with guaranteed BAH. UC San Diego and the biotech corridor (Qualcomm, Illumina, General Atomics) add high-income tech/science tenants. Your $53.7K in Year 1 federal savings is substantial, and Prop 13 keeps property taxes locked low.

What is the average insurance cost for rental properties in San Diego?

+

The average annual homeowner insurance premium in San Diego is approximately $1,800. San Diego's insurance costs are moderate by California standards. Wildfire risk is concentrated in eastern canyons and foothills. Earthquake insurance adds $3-6K/year. Coastal properties face separate risks. Budget $1,800 for standard plus earthquake separately.

What are the STR and landlord rules in San Diego?

+

San Diego is rated "Tenant-Friendly" for landlords. STR regulation: Permitted with STRO (Short-Term Residential Occupancy) license. Eviction timeline: 60-90 days. San Diego allows STRs with a tiered license system. Tier 1 (mission beach): limited. Tier 2 (whole-home, primary): limited to 20 nights when unhosted, unlimited when hosted. Tier 3 (partial-home): unlimited. Tier 4 (whole-home, non-primary): limited licenses available by lottery. Research tier requirements before investing.

Who are the major employers in San Diego?

+

Major employers in San Diego include Naval Base San Diego (50K+), UC San Diego / Health (35K+), Sharp HealthCare (18K+), Qualcomm (13K+), General Atomics (10K+). Top industries: Military & Defense, Biotech & Life Sciences, Healthcare, Technology, Tourism.

See Your Savings

Find Out How Much You Could Save in San Diego, CA

Enter your property address to get an AI-powered cost segregation estimate in 60 seconds.