Cost Segregation in Tennessee

No state income tax on wages, the lowest property taxes in the Southeast, and Nashville's explosive growth make Tennessee one of the most tax-efficient states in America for real estate investors — where every dollar of federal cost seg savings goes straight to your bottom line.

Population
7.1M
Median Home
$340K
Property Tax
0.63%
13th lowest in U.S.
State Income Tax
None
No State Income Tax (on wages/investment income)
Bonus Depreciation
Partial
State Conformity
Avg. Insurance
$2,200
4% below average (statewide) / above in West TN tornado zones
Tax Strategy

Cost Segregation & Tax Rules in Tennessee

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

Cost Seg Overview
State vs. Federal Rules
Tax Landscape
Median Home Price
$340K
Building Value
80%
of purchase price
Cost Seg Range
25-40%
of building reclassified
Median Home Age
28 yrs
Built ~1996
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 Tennessee, typical reclassification rates are 25-40% of building value.

Common Property Types
Single-Family DetachedRanch-Style HomesTownhomesSmall Multi-Family (2-4 units)
Tennessee's moderate property values and strong building ratios create excellent cost seg ROI. Nashville properties in the $400-500K range generate the largest absolute savings, while Memphis sub-$250K properties offer the highest ROI per dollar.
Overline Study Cost & ROI
Overline Study Cost
$499 - $2,000
Avg. ROI
10-40x

The math: A $340K property with 80% building value and 30% reclassification yields ~$30K 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 1996, Tennessee's housing stock has identifiable components (HVAC, electrical, plumbing, landscaping) that are strong candidates for accelerated depreciation.

N/A — No State Income Tax
Tennessee Bonus Depreciation Conformity

Tennessee has no state income tax on wages or investment income, so state-level depreciation conformity is not applicable. All cost segregation benefits are captured at the federal level — 100% bonus depreciation on reclassified components.

What This Means for Your Investment: With no state income tax, 100% of your tax savings come from the federal deduction. This simplifies planning significantly — no state addback rules, no conformity concerns, just pure federal savings at your marginal rate.

Federal vs. TN Depreciation Timeline
PeriodFederal TreatmentTN State Treatment
Year 1100% bonus depreciationN/A — No state income tax
Years 2+Standard MACRS schedulesN/A
Section 179 Expensing
State ConformityLimited

With no state income tax, Section 179 deductions are federal-only in Tennessee. However, TN's lack of state tax means more retained cash flow to reinvest — Nashville investors often use cost seg savings to fund their next acquisition.

Key Takeaway

A $350K property with a $280K depreciable basis and 30% cost seg reclassification yields ~$31,080 in federal tax savings in Year 1. With no state income tax and 0.63% property taxes, Tennessee maximizes your after-tax return on every investment dollar.

Bottom Line

Tennessee's zero state income tax means all cost seg benefits are federal. Combined with some of the lowest property taxes in the nation, TN investors enjoy the highest after-tax cash flow potential in the Southeast.

Eff. Property Tax
0.63%
13th lowest in U.S.
Transfer Tax
$0.37 per $100 of sale price
State Income Tax
None
No State Income Tax (on wages/investment income)
Property Tax Details

Tennessee has some of the lowest property taxes in the nation. Residential properties are assessed at 25% of appraised value. Davidson County (Nashville) effective rate is ~0.73%, Shelby County (Memphis) is ~1.25%.

Assessment Methodology
MethodAppraised value at 25% assessment ratio (residential/farm)
Reassessment CycleEvery 4-6 years (county-dependent)
Assessment BodyCounty Assessor of Property
Appeal WindowDuring equalization period (typically April-May of reappraisal year)
Appeal Success Likelihood
Moderate
LowModerateGoodVery High

Tennessee's 25% assessment ratio for residential property keeps effective rates low. The Comptroller's office oversees county reappraisals for uniformity. Davidson County (Nashville) completed a 2024 reappraisal with significant increases. The County Board of Equalization handles appeals at no cost.

Work with Overline — Our team helps Tennessee 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 Tennessee

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

Typical Tennessee Property Details
$
50%95%
5%35%
2%25%
Total Reclassified30% of building
10%37%
Estimated Year 1 Tax Savings
Building Value$280,000
$350,000 x 80%
Normal Annual Depreciation$10,182
$280,000 ÷ 27.5 yr (residential)
5-Year Reclassified$50,400
15-Year Reclassified$33,600
Total Accelerated$84,000
30% of $280,000 building value
Federal Tax Savings (Year 1)$31,080
$84,000 x 37% bracket
Total Year 1 Tax Savings$31,080
8.3x normal annual deduction captured in Year 1

TN State Tax: With no state income tax, 100% of your tax savings come from the federal deduction. This simplifies planning significantly — no state addback rules, no conformity concerns, just pure federal savings at your marginal rate.

Depreciable Basis

Land vs. Building Value in Tennessee

The land-to-building ratio directly impacts your cost segregation benefit — only the building portion is depreciable. Here is how Tennessee breaks down by region.

Statewide Average
Building (Depreciable)80%
Land (Non-Depreciable)20%
80%
Depreciable Basis
Breakdown by Region
Nashville (Davidson County)
75% Building

Nashville's rapid growth has pushed land values up, but building ratios remain solid. Suburban areas offer better ratios.

Nashville Suburbs (Williamson/Rutherford)
78% Building

Fast-growing suburbs with balanced land/building values. Franklin and Murfreesboro offer strong fundamentals.

Memphis (Shelby County)
85% Building

Low land values create exceptional building-to-value ratios — ideal for cost seg.

Knoxville / Chattanooga
82% Building

Moderate land costs with growing university and tech demand.

Rural Tennessee
88% Building

Lowest land costs. Best cost seg ratios but smaller rental markets.

Investor Takeaway

Memphis offers the best cost seg efficiency with 85% building ratios at ultra-affordable prices. Nashville's 75% building ratio generates large absolute savings due to higher property values. Both cities benefit from zero state income tax.

Insurance & Risk

Insurance Landscape in Tennessee

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

Avg. Annual Premium
$2,200
4% below average (statewide) / above in West TN tornado zones
National Average
$2,300
for comparison
Premium Trend
Rising 7-10% annually, driven by severe storm claims
Primary Risk Drivers
1
Tornadoes & Severe Storms
Tennessee averages 20+ tornadoes annually. The 2020 Nashville tornado caused $1.6B in damage. Middle and West TN are highest risk.
2
Hail Damage
Frequent large hail events, especially in spring. Roof replacement claims are the #1 insurance cost driver statewide.
3
Flooding
Flash flooding from heavy rain is common. The 2010 Nashville flood caused $2B+ in damage. Flood insurance is recommended in river valleys.
Coverage Recommendations
Standard homeowner's policy with replacement cost coverage
Wind/hail deductible awareness (typically 1-2% of dwelling coverage in tornado zones)
Flood insurance recommended in Nashville river corridors and Memphis lowlands
Umbrella liability ($1M+) for rental property portfolios
Cost Seg + Insurance Connection

Tennessee's severe storm exposure makes accurate building valuation critical. A cost seg study provides detailed component-level documentation that supports insurance replacement cost estimates — ensuring you're properly covered when tornado or hail damage strikes.

Market Fundamentals

Economy & Housing Demand in Tennessee

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

State GDP
$440B
Growing 3.0%/year
Unemployment
3.2%
Below national average
Median Income
$63,000
+18.5% over 5 years
Pop. Growth (1Y)
+1.1%
+80,000/year net migration
Major Industries
Healthcare17%
Nashville is America's Healthcare Capital. HCA Healthcare HQ, Community Health Systems, and 500+ healthcare companies. $92B annual industry.
Music & Entertainment8%
Nashville's music industry generates $10B+ annually. Film and TV production is growing rapidly with state tax incentives.
Logistics & Distribution12%
FedEx HQ (Memphis), Amazon fulfillment centers, and central geographic location make TN a logistics hub.
Manufacturing14%
Nissan (Smyrna), GM (Spring Hill), VW (Chattanooga), and Ford (West TN). Major auto manufacturing corridor.
Technology10%
Amazon Operations HQ (Nashville), Oracle Health (Cerner), AllianceBernstein. Nashville's tech scene is exploding.
Key Economic Engines
Nashville Healthcare: HCA + 500 companies = $92B industry, 300K+ jobs
FedEx HQ (Memphis): 30,000+ local employees, global logistics center
Amazon Operations HQ (Nashville): 5,000+ jobs, $2B+ campus investment
Auto manufacturing: Nissan, GM, VW, Ford employ 50K+ across the state
Housing Demand Signals
5-Year Pop. Growth
+6.2%
Housing Permits YoY
+7.2%
Median Days on Market
28 days
Months of Inventory
2
Migration: No income tax is the #1 draw. Nashville's job growth attracts professionals from California, New York, and Illinois. Music and entertainment industry draws creative workers. Memphis attracts logistics and manufacturing talent.
Construction: Wood frame with brick veneer or vinyl, Slab-on-grade foundation, Newer suburban construction, Ranch and split-level (older stock)
Landlord & STR Rules
Landlord Friendliness
Very Friendly
Eviction Timeline
30-45 days
Rent Control
Prohibited statewide
STR Regulation
Moderate

Tennessee does not have statewide STR restrictions. Nashville requires a STR permit and limits non-owner-occupied STRs to specific zoning districts. Memphis and other cities are more permissive. The state collects a 7% sales tax on STR stays.

Local Markets

Top Cities for Investors in Tennessee

Explore city-level cost segregation data, sample deals, and investment fundamentals for each major market in Tennessee.

Nashville, TN
#3 Fastest Growing
Median Home
$450K
Rent (3BR)
$2,400
Property Tax
0.73%
Avg. Insurance
$2,200/yr
Est. Year 1 Tax Savings$38K+
View Nashville Details
Memphis, TN
Logistics Capital
Median Home
$230K
Rent (3BR)
$1,400
Property Tax
1.25%
Avg. Insurance
$2,400/yr
Est. Year 1 Tax Savings$20K+
View Memphis Details
Local Partners

Investor-Friendly Partners in Tennessee

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

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 Tennessee?

Partner With Overline
Frequently Asked Questions

Cost Segregation FAQ — Tennessee

Does Tennessee conform to federal bonus depreciation?

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Tennessee has no state income tax on wages or investment income, so state-level depreciation conformity is not applicable. All cost segregation benefits are captured at the federal level — 100% bonus depreciation on reclassified components.

What is the property tax rate in Tennessee?

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The effective property tax rate in Tennessee is 0.63%, ranked 13th lowest in U.S. in the U.S. Tennessee has some of the lowest property taxes in the nation. Residential properties are assessed at 25% of appraised value. Davidson County (Nashville) effective rate is ~0.73%, Shelby County (Memphis) is ~1.25%.

How much can I save with cost segregation in Tennessee?

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A $350K property with a $280K depreciable basis and 30% cost seg reclassification yields ~$31,080 in federal tax savings in Year 1. With no state income tax and 0.63% property taxes, Tennessee maximizes your after-tax return on every investment dollar.

What are the typical cost segregation reclassification rates in Tennessee?

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In Tennessee, typical cost segregation studies reclassify 25-40% of building value into accelerated depreciation categories (5-year, 7-year, and 15-year property). Overline studies cost $499-$2,000 with 10-40x ROI.

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

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The average annual homeowner insurance premium in Tennessee is $2,200, which is 4% below average (statewide) / above in West TN tornado zones the national average of $2,300. Key risk drivers include Tornadoes & Severe Storms and Hail Damage.

What is the state income tax rate in Tennessee?

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Tennessee has a state income tax rate of None (No State Income Tax (on wages/investment income)). Tennessee has no state income tax on wages, salaries, or investment income. The Hall Income Tax on interest and dividends was fully repealed in 2021. Cost seg benefits are purely federal, with no state tax complications.

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