If you live in Arlington, Alexandria, Tysons, or anywhere in Northern Virginia, you pay federal 37% + NIIT 3.8% + VA 5.75% = ~46.5% combined — a meaningful step down from DC’s 10.75% top state-equivalent rate. Cost segregation on out-of-state STR converts that bracket into Year-1 cash savings.
- $161,000 Accelerated Depreciation (typical STR worked example)
- $75,000 Est. Year-1 Tax Savings (federal + NIIT + VA)
- 94x Return on Study Cost
Want a number for your specific situation? Use the calculator — preset for property-type defaults you can adjust to your basis and bracket.
The Northern Virginia investor profile
NoVA’s cost-seg buyer pool is distinct from DC proper — heavier defense-contractor and tech-contractor concentration, more dual-income households, lower state tax (VA 5.75% vs DC 10.75%):
- Defense contractors and federal-tech (Booz Allen, Deloitte Federal, Accenture Federal, MITRE, SAIC, Leidos, Raytheon-RTX, Northrop) — $250K–$900K + bonus
- Cleared tech and gov-tech (Palantir, Anduril, AWS GovCloud, Microsoft Federal, Amazon HQ2) — $300K–$1.2M with equity
- BigLaw and regulatory (DC-firm partners and senior counsel who live in NoVA for the lower tax) — $400K–$1.5M+
- Senior consulting + management consulting (McKinsey DC, Bain DC, BCG DC) — $300K–$1M+ with project bonus
The combined marginal-rate stack:
- Federal: 37%
- NIIT: 3.8%
- Virginia: 5.75% (top rate, applies at $17K+ taxable income)
- Combined: ~46.5%
The 5 percentage point gap vs DC residents is exactly why many high-comp NoVA buyers keep an Arlington/Alexandria/Tysons residence rather than DC proper. Over a 10-year hold + 100% bonus depreciation Year-1 deduction window, that gap meaningfully compounds.
Verify with your CPA — combined-rate math depends on filing status, AGI thresholds for NIIT, and the actual VA bracket your income lands in.
Why cost seg pays more if you live in NoVA
A typical $500K–$1.2M out-of-state STR reclassifies 24–32% of basis under permanent 100% bonus depreciation. At the NoVA combined bracket (~46.5%), every $1 of accelerated depreciation is worth ~$0.465 in Year-1 cash savings.
The NoVA investor has a structural advantage NYC and SF don’t: dual-income households are common, and if one spouse works at home or part-time, that spouse can often qualify for Real Estate Professional Status (REPS — 750+ hours + >50% personal services in real estate). REPS converts ALL rental losses (not just STR) into non-passive, dramatically expanding the cost-seg strategy beyond the STR exception under Reg. §1.469-1T(e)(3)(ii).
Where NoVA investors are buying
NoVA investors flow capital to STR markets within a 1-3 hour drive or short flight:
- Outer Banks, NC — Atlantic coastal STR, 5-hour drive market for NoVA.
- 30A / Destin, FL — Florida 0% state tax, premium beachfront, direct IAD/DCA flights.
- Smoky Mountains (Pigeon Forge, Gatlinburg) — Tennessee 0% state tax, cabin STR.
- Charleston, SC — Historic, walkable, strong year-round ADR.
- Asheville, NC — Blue Ridge mountain market, 6-hour drive.
A real Arlington investor’s worked example
A defense-prime IT principal earning $385K + $80K bonus, residing in Arlington (spouse is part-time at home managing two kids and a small consulting practice), buys a 2BR 30A condo for $700K with $25K immediate FF&E refresh. After $165K in land, the $535K adjusted basis includes $65K in 5-year assets (appliances, smart-home, theater equipment, beach package, decorative lighting), $24K in 7-year assets (custom furniture, beach-themed built-ins), and $72K in 15-year property (pool deck, hardscaping, fencing, beach-access lighting).
That’s $161K reclassified into accelerated depreciation in Year 1. At the NoVA combined bracket (~46.5%), federal + state savings come to roughly $75,000. If the spouse claims REPS (feasible given her part-time schedule + property management hours), the deduction offsets the principal’s full W-2 income — not just the Reg. §1.469-1T(e)(3)(ii) STR-active income.
What disqualifies an Arlington investor
REPS is structurally impossible for a full-time defense contractor or consulting principal — the 750-hour + >50% test conflicts with billable hours. If both spouses work full-W-2 jobs, only the STR exception works (7-day average + 100-hour material participation).
NoVA dual-income households where one spouse is at home or part-time have the strongest REPS-feasibility profile of any major investor metro in the country. That’s the NoVA-specific advantage worth pursuing carefully.
Frequently Asked Questions
How is Arlington different from DC for cost-seg purposes? The federal portion (37% + 3.8% NIIT) is identical. The state portion is the gap: VA 5.75% vs DC 10.75% — a 5-percentage-point spread. A $161K accelerated-depreciation deduction yields ~$75K savings at the NoVA bracket vs ~$80K at the DC bracket. Small per-property gap, but compounds across portfolio investments.
Does VA conform to federal bonus depreciation? Virginia generally conforms to federal MACRS but requires modifications on certain accelerated depreciation provisions historically. Confirm with your CPA whether the VA portion of your Year-1 savings is fully realized or partially deferred.
Are there cleared-investor restrictions on cost-seg studies? No — cost segregation is a depreciation classification, not a financial holding. Standard SF-86 disclosure covers property ownership directly. The cost-seg study itself doesn’t create a reportable financial relationship.
Learn More About Cost Segregation
- What Is Cost Segregation?
- STR Tax Exception Explained
- Cost Segregation in Washington, DC — DC-resident investor page
- Real Estate Professional Status