Cost segregation calculator for short-term rentals

When you buy a rental, the IRS default is to depreciate the whole building as one asset. For a short-term rental with mostly transient guests, that is 39-year nonresidential property, because a home rented by the night is not a dwelling unit under the tax code. A long-term rental is 27.5-year residential rental property.

Cost segregation splits the building into its components and depreciates each on its own schedule. Appliances, carpet and furnishings that convey with the sale are typically 5- or 7-year property, and residential studies often treat kitchen cabinets and decorative fixtures the same way. Driveways, fencing, landscaping and similar site work are 15-year property. Only the structure itself stays at 39 years. The short-life pieces depreciate much faster, so more of the deduction lands early.

Bonus depreciation lets you deduct the cost of 5-, 7- and 15-year property in the year it is placed in service instead of spreading it out. The One Big Beautiful Bill Act, signed in July 2025, made 100% bonus depreciation permanent for qualifying property acquired after January 19, 2025. Earlier phase-down rules applied before that date.

The building itself never gets bonus, which is why the split matters: the calculator applies bonus to the short-life components and depreciates what is left on the schedule tables. Confirm how the rules apply to your purchase with a CPA.

The so-called STR loophole is a different question from the 39-year classification. If the average guest stay is seven days or less and you materially participate in the rental, the activity is generally not treated as a passive rental, so a paper loss from depreciation may offset other income such as wages. Both conditions matter, and the IRS lists specific material participation tests that you have to document.

Neither rule depends on the other. A property can be 39-year property and still qualify for the loophole. Whether you qualify is a fact-specific tax question, so check with a CPA before relying on it. This calculator shows the size of the deduction, not whether you can use it against other income.

A cost segregation study is prepared by an engineering or cost segregation firm, usually with a site visit or detailed documentation, and it is the document you would hold if the IRS asked. The number here is a component-level estimate built from what a listing tells us (size, age, beds and baths, features) and published unit costs, and it is calibrated against a real study. It does not replace one.

The tool shows two views. The typical study view reflects how residential studies commonly classify components. The IRS-guide floor uses the conservative classification in the IRS Cost Segregation Audit Techniques Guide, which moves items such as kitchen cabinets and attached decks back into the building. Treat the gap between them as a range.

The biggest levers are the purchase price and the land share, because land never depreciates. Furnishings and appliances that convey with the sale, flooring type, and site work such as a driveway, landscaping, hot tub, deck or pool move more basis into short-life classes. Condos own the unit only, so they have little or no site work.

Timing matters too. The building is depreciated from the month you place the property in service (the mid-month convention), so a December closing gets only a sliver of a year on the 39-year part. With 100% bonus the short-life components are deducted in full either way; with less than 100% bonus, placing more than 40 percent of the year's short-life property in service in the last quarter triggers the mid-quarter convention, which lowers the first-year figure. Use the questionnaire under the calculator to change these.

Faster depreciation is a timing benefit, not a permanent one. When you sell, depreciation you took on personal property is generally recaptured as ordinary income, and depreciation on the building is taxed at up to 25 percent as unrecaptured section 1250 gain. Deferring tax and investing the difference can still come out ahead, and a 1031 exchange or holding for a long time changes the picture.

The engine behind this page models recapture at sale, so the deal pages show the after-sale tax alongside the write-off. This tool is federal only and ignores state taxes, passive loss limits and the alternative minimum tax.