Cost Segregation in Philadelphia, PA

America's 6th-largest city with world-class healthcare, 100+ colleges, and a 1.6M population — Philadelphia delivers massive tenant demand, affordable entry prices, and strong federal cost segregation returns despite PA's bonus depreciation non-conformity.

Population
6.2M
Median Home
$320K
Rent (3BR)
$1,900
Property Tax
1.36%
Annual Job Growth
30K+
Ranking
#6 Largest City
Overview

Value Props for Investors

HEALTHCARE GIANT
Penn Medicine + Jefferson = 75K+ Jobs

Philadelphia's healthcare cluster is among the largest in America. Medical residents, nurses, and support staff need affordable housing near hospital campuses.

TAX ABATEMENT
10-Year Property Tax Abatement on Rehab

Philadelphia's 10-year tax abatement eliminates property tax increases on new construction or substantial improvements — one of the most generous incentives for real estate investors in the country.

NYC ALTERNATIVE
$320K Median — A Fraction of New York

Philadelphia offers big-city amenities, Amtrak to NYC (75 min), and a 6.2M metro at 60-70% below NYC-area investments. The rent-to-price ratio is significantly more favorable.

Tax Strategy

Cost Segregation & Tax Rules in Philadelphia, PA

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

Cost Seg Overview
State vs. Federal Rules
Tax Landscape
Typical Purchase
$320,000
Building Value
80%
20% land / 80% building
Cost Seg Range
25-40%
of building reclassified
Home Age
60 yrs
Built ~1964
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 Philadelphia, typical reclassification rates are 25-40% of building value.

Purchase Price Breakdown
Building 80%$256,000
Land 20%$64,000
Building Value Reallocation (with Cost Seg)
5-Year Property18%
$46,080
15-Year Property12%
$30,720
27.5 / 39-Year (Remaining)70%
$179,200

5 & 15-year components ($76,800 = 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 $320,000 property with 80% building value and 30% reclassification yields ~$28,416 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 1964, Philadelphia's housing stock has identifiable components (HVAC, electrical, plumbing, landscaping) that are strong candidates for accelerated depreciation.

Non-Conforming — PA Does NOT Allow Bonus Depreciation
Pennsylvania Bonus Depreciation Conformity

Pennsylvania does NOT conform to federal bonus depreciation under Section 168(k). PA requires taxpayers to use standard MACRS depreciation schedules without bonus for state tax purposes. Federal bonus depreciation is claimed normally on your federal return.

What This Means for Philadelphia Investors: Federal cost segregation benefits apply in full — you receive 100% bonus depreciation on reclassified components on your federal return. However, PA state returns will not reflect the accelerated bonus deduction. State-level benefits are limited to the incremental value of shorter MACRS lives.

Federal vs. PA Depreciation Timeline
PeriodFederal TreatmentPA State Treatment
Year 1100% bonus depreciationStandard MACRS first-year rates only (no bonus)
Years 2+Standard MACRS schedulesStandard MACRS schedules (shorter lives still benefit from cost seg)
Section 179 Expensing
State ConformityLimited

PA's $25,000 Section 179 cap significantly limits this strategy at the state level. Focus on the federal benefits.

Key Takeaway

A $260K property with a $208K depreciable basis and 28% cost seg reclassification yields ~$21.5K in federal tax savings in Year 1. PA state savings are minimal in Year 1 due to non-conformity, but the federal benefit alone delivers exceptional ROI.

Bottom Line

PA is a non-conforming state for bonus depreciation. Your federal tax savings are substantial and immediate. State-level savings are minimal in Year 1. Investors should focus on the federal benefit and view PA state savings as a long-term bonus spread over MACRS schedules.

Local Property Tax
1.36%
Philadelphia effective rate
Transfer Tax
2% state + 2% local in most areas (4% total in Philadelphia)
State Income Tax
3.07%
Flat
Property Tax Details

Philadelphia's effective rate of ~1.36% uses the AVI assessment system. The 10-year tax abatement for new construction or substantial rehab can eliminate property tax increases.

Assessment Methodology
MethodCommon Level Ratio (CLR) applied to assessed value
Reassessment CycleVaries widely — some counties haven't reassessed in 20+ years
Assessment BodyCounty Board of Assessment
Appeal WindowVaries by county (typically August 1 – September 1)
Appeal Success Likelihood
Very High
LowModerateGoodVery High

Pennsylvania's outdated assessment system is notorious for inequity. Many counties use base years from the 1990s-2000s with CLR adjustments. Philadelphia reassesses annually, while suburban counties may not have reassessed in decades. This creates significant over- and under-assessment, making appeals one of the highest-ROI actions for PA investors.

Work with Overline — Our team helps Philadelphia 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 Philadelphia, PA

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

Typical Philadelphia, PA Property Details
$
50%95%
5%35%
2%25%
Total Reclassified30% of building
10%37%
Estimated Year 1 Tax Savings
Building Value$256,000
$320,000 x 80%
Normal Annual Depreciation$9,309
$256,000 ÷ 27.5 yr (residential)
5-Year Reclassified$46,080
15-Year Reclassified$30,720
Total Accelerated$76,800
30% of $256,000 building value
Federal Tax Savings (Year 1)$28,416
$76,800 x 37% bracket
Total Year 1 Tax Savings$28,416
8.3x normal annual deduction captured in Year 1

PA State Tax: Federal cost segregation benefits apply in full — you receive 100% bonus depreciation on reclassified components on your federal return. However, PA state returns will not reflect the accelerated bonus deduction. State-level benefits are limited to the incremental value of shorter MACRS lives.

Insurance & Risk

Insurance Landscape in Philadelphia

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

Avg. Annual Premium
$1,600
Philadelphia average
State Average
$1,500
35% below average
National Average
$2,300
for comparison
Key Risk Drivers
1
Severe thunderstorms and wind
2
Hurricane remnant flooding
3
Frozen pipes in older rowhomes
Coverage Recommendations
Standard homeowner's policy with replacement cost coverage
Flood insurance for properties near rivers or in known flood plains
Frozen pipe coverage / water damage endorsement for older homes
Umbrella liability policy ($1M+) for rental properties
Cost Seg + Insurance Connection

PA's older housing stock makes accurate replacement cost documentation critical. A cost seg study provides detailed valuations invaluable for insurance — ensuring you're not underinsured on renovated older homes.

Revenue Comparison

STR vs. Long-Term Rental in Philadelphia

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

Long-Term Rental
Monthly Rent (3BR)$1,900
Annual Gross$22,800
Vacancy Rate5%
Net Annual$21,660
Tenant StabilityHealthcare and university workers provide reliable demand; medical residents sign 12-36 month leases
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$155
Occupancy Rate67%
Annual Gross Revenue$37,903
Net Annual (after expenses)$28,427
ManagementSelf or 20-25% PM fee
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

Despite PA's non-conformity, the federal cost seg savings of $28.4K on a $320K property are substantial. Pair with the 10-year tax abatement on value-add rehab, and your total tax advantage over a decade can exceed $80K.

Market Fundamentals

Economy & Housing Demand in Philadelphia

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

Median Income
$55,000
Rent-to-Income
33%
Healthy ratio
Vacancy Rate
4.8%
Pop. Growth
+0.3% annually
Major Employers
1
Penn Medicine (45K+)
2
Jefferson Health (30K+)
3
Comcast HQ (12K+)
4
University of Pennsylvania (20K+)
5
Drexel University (8K+)
6
Temple Health (10K+)
Top Industries
Healthcare
Education
Financial Services
Media & Communications
Life Sciences
Landlord & STR Rules
Landlord Friendliness
Moderate — Slower Evictions
Eviction Timeline
60-90 days
STR Regulation
Permitted with licensing and hotel tax

Philadelphia requires a rental license and Activity License for STRs. An 8.5% hotel tax applies. Most residential areas allow STRs.

Why Invest Here

Philadelphia's 1.6M population, 100+ colleges, and world-class healthcare create massive, recession-resistant tenant demand. At $320K median prices — a fraction of NYC — Philly offers deep value. The 10-year property tax abatement for rehab is one of the best incentives in the country.

Where to Invest

Top Neighborhoods in Philadelphia

#1
University City
Penn and Drexel campus area with Innovation District
Price
$350K
Rent
$2,100
Yield
7.2%
Ground zero for Philadelphia's healthcare and education economy. Penn Medicine, Children's Hospital, and Drexel create 60K+ jobs within walking distance.
$350K$2,1007.2%
Ground zero for Philadelphia's healthcare and education economy. Penn Medicine, Children's Hospital, and Drexel create 60K+ jobs within walking distance.
Ground zero for Philadelphia's healthcare and education economy. Penn Medicine, Children's Hospital, and Drexel create 60K+ jobs within walking distance.
#2
Fishtown / Northern Liberties
Trendy arts district with breweries and young professionals
Price
$380K
Rent
$2,000
Yield
6.3%
Philadelphia's hottest neighborhood for appreciation. 100%+ price growth over 10 years. Strong STR demand. 1920s-1960s rowhomes yield excellent cost seg.
$380K$2,0006.3%
Philadelphia's hottest neighborhood for appreciation. 100%+ price growth over 10 years. Strong STR demand. 1920s-1960s rowhomes yield excellent cost seg.
Philadelphia's hottest neighborhood for appreciation. 100%+ price growth over 10 years. Strong STR demand. 1920s-1960s rowhomes yield excellent cost seg.
#3
South Philadelphia
Iconic neighborhood with Italian Market and stadiums
Price
$290K
Rent
$1,700
Yield
7.0%
Best cash-flow economics in the city. Affordable rowhomes near stadiums and the Italian Market provide strong LTR demand. Stadium-area STR demand on game days.
$290K$1,7007.0%
Best cash-flow economics in the city. Affordable rowhomes near stadiums and the Italian Market provide strong LTR demand. Stadium-area STR demand on game days.
Best cash-flow economics in the city. Affordable rowhomes near stadiums and the Italian Market provide strong LTR demand. Stadium-area STR demand on game days.
#4
Manayunk / Roxborough
Hilly northwest with canal towpath and young professional appeal
Price
$310K
Rent
$1,800
Yield
7.0%
Walkable Main Street and Schuylkill River Trail attract young professionals priced out of Center City. Affordable entry with strong rent growth.
$310K$1,8007.0%
Walkable Main Street and Schuylkill River Trail attract young professionals priced out of Center City. Affordable entry with strong rent growth.
Walkable Main Street and Schuylkill River Trail attract young professionals priced out of Center City. Affordable entry with strong rent growth.
#5
Germantown / Mount Airy
Historic tree-lined neighborhoods with large Victorian homes
Price
$250K
Rent
$1,500
Yield
7.2%
Northwest Philadelphia's most affordable entry. Large Victorian homes can be converted to multi-unit. The 10-year tax abatement makes value-add plays exceptionally profitable.
$250K$1,5007.2%
Northwest Philadelphia's most affordable entry. Large Victorian homes can be converted to multi-unit. The 10-year tax abatement makes value-add plays exceptionally profitable.
Northwest Philadelphia's most affordable entry. Large Victorian homes can be converted to multi-unit. The 10-year tax abatement makes value-add plays exceptionally profitable.
Local Partners

Investor-Friendly Partners in Philadelphia, PA

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

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 Philadelphia, PA?

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Frequently Asked Questions

Cost Segregation FAQ — Philadelphia, PA

How much can I save with cost segregation in Philadelphia, PA?

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On a typical $320K property in Philadelphia, cost segregation can yield approximately $28,416 in Year 1 combined federal and state tax savings at the 37% bracket, with a study ROI of 568%. Overline studies cost $499-$2,000.

What is the property tax rate in Philadelphia?

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The effective property tax rate in Philadelphia is approximately 1.36%. Philadelphia's effective rate of ~1.36% uses the AVI assessment system. The 10-year tax abatement for new construction or substantial rehab can eliminate property tax increases.

Is Philadelphia a good market for real estate investing?

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Philadelphia's 1.6M population, 100+ colleges, and world-class healthcare create massive, recession-resistant tenant demand. At $320K median prices — a fraction of NYC — Philly offers deep value. The 10-year property tax abatement for rehab is one of the best incentives in the country.

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

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The average annual homeowner insurance premium in Philadelphia is approximately $1,600. Philadelphia's insurance costs are well below the national average. Properties near the Schuylkill or Delaware rivers should carry flood insurance.

What are the STR and landlord rules in Philadelphia?

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Philadelphia is rated "Moderate — Slower Evictions" for landlords. STR regulation: Permitted with licensing and hotel tax. Eviction timeline: 60-90 days. Philadelphia requires a rental license and Activity License for STRs. An 8.5% hotel tax applies. Most residential areas allow STRs.

Who are the major employers in Philadelphia?

+

Major employers in Philadelphia include Penn Medicine (45K+), Jefferson Health (30K+), Comcast HQ (12K+), University of Pennsylvania (20K+), Drexel University (8K+). Top industries: Healthcare, Education, Financial Services, Media & Communications, Life Sciences.

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