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Audit support includedFlat price for every study3 to 5 business days Converting a primary home to an Airbnb resets your depreciable basis to the lesser of your adjusted cost basis or the property's fair market value on the date you place it in service as a rental, and that new basis is what a cost segregation study measures, not your original purchase price. Studies typically reclassify 20% to 45% of a property's depreciable basis, moving it out of 27.5-year property and into 5-, 7-, and 15-year property. The catch is bonus depreciation. Under the One Big Beautiful Bill Act, the 100% rate requires property to be both acquired and placed in service after January 19, 2025. Converting a home starts its depreciation but does not change when you bought it, so a home purchased before January 20, 2025 and converted in 2026 gets 20% bonus depreciation, not 100%. The study still pays off in that case, because the reclassified components depreciate over 5 to 15 years instead of 27.5.
- Converting a primary home to an Airbnb resets your depreciable basis to the lower of cost or fair market value.
- Studies typically reclassify 20% to 45% of a property's depreciable basis into 5-, 7-, and 15-year property.
- 100% bonus depreciation requires the home to be both acquired and placed in service after January 19, 2025. A home bought earlier and converted in 2026 gets 20%.
- Without 100% bonus depreciation, reclassified components still depreciate over 5 to 15 years instead of 27.5, which moves deductions into your first years as a rental.
- Virtual Cost Segregation delivers a study in 3 to 5 business days with no site visit required.
Why this matters
Most owners assume the depreciation clock starts with their original purchase price. It does not. The basis rule for converted property caps your depreciable basis at whichever is lower: your adjusted cost basis or the fair market value on the day the home becomes a rental. If your home appreciated significantly before you converted it, this rule can shrink the base a cost segregation study works from, and it changes how depreciation after moving out of a primary home actually gets calculated on your return.
That basis, once set, is what feeds the entire cost segregation math. Get the conversion date and basis documentation wrong, and every downstream deduction is calculated on the wrong number.
How cost segregation works when you convert a primary home to an Airbnb
The process runs in five steps once a home stops being your residence and starts generating rental income.
- Set the conversion date. This is the day the home is ready and available for rent, which is usually when it is listed, not the day you moved out.
- Establish the depreciable basis. Use the lower of adjusted cost basis (purchase price plus capital improvements, minus land value) or fair market value at conversion.
- Order an engineering-based cost segregation study. The study reviews construction records, tax assessor data, and comparable cost data to classify components into 5, 7, 15, and 27.5-year buckets. Most single-family conversions do not require a site visit.
- Apply bonus depreciation, if eligible. The rate depends on when you acquired the home, not just when you converted it. Bought and converted after January 19, 2025: 100%. Bought before January 20, 2025 and converted in 2026: 20%. Bought before January 20, 2025 and converted in 2027 or later: none. Whatever bonus depreciation does not cover still depreciates on the shorter 5-, 7-, and 15-year schedules.
- Hand the report to your CPA. They implement the results on Form 4562, and if depreciation was missed in a prior year, Form 3115 catches it up.
| Basis component | Which value applies |
|---|---|
| Original purchase price plus capital improvements | Used only if lower than fair market value at conversion |
| Fair market value at conversion date | Used only if lower than adjusted cost basis |
| Land value | Excluded from depreciable basis, typically 10 to 20% of total value |
“The depreciable basis on a converted primary home is capped at the lower of cost or fair market value on the day it becomes a rental, not what you paid for the house.”
$500,000 primary home converted to Airbnb: a 2026 sample calculation
Assume a conversion basis of $500,000 after excluding land value, a January 2026 conversion, and a study that reclassifies 25% of that basis: $75,000 of 5-year property and $50,000 of 15-year property, leaving $375,000 as 27.5-year property. Without a study, first-year depreciation on the full $500,000 is about $17,425.
What the study adds in year one depends on when you bought the home:
| Scenario | First-year depreciation | Added by the study | Tax savings at 37% |
|---|---|---|---|
| Bought after January 19, 2025 (100% bonus) | $138,069 | $120,644 | About $44,600 |
| Bought before January 20, 2025 (20% bonus) | $52,069 | $34,644 | About $12,800 |
| No bonus (bought before January 20, 2025, converted in 2027) | $30,569 | $13,144 | About $4,900 |
Bonus depreciation changes the timing of deductions, not the total. Without it, the reclassified $125,000 still comes off your taxable income over 5 and 15 years instead of 27.5, so the study keeps producing larger deductions for years after the conversion.
These figures assume a W-2 earner in the 37% bracket who qualifies for the short-term rental loophole, the half-year convention for the 5- and 15-year property, and no state tax. A conversion late in the year can change the convention and the first-year numbers. The 25% split is an assumption within the typical 20% to 45% range, not a guarantee of any specific study result.
See your conversion's numbers
Get a flat-fee, engineering-based study built for your placed-in-service date.
Why the tax benefit varies
The 25% and 37% figures above are examples. Your actual outcome depends on:
- Conversion basis. Whether cost or fair market value ends up lower drives the entire calculation.
- Purchase and conversion dates. 100% bonus depreciation requires both to fall after January 19, 2025. A home bought before January 20, 2025 gets 20% if converted in 2026 and none if converted later.
- Personal use. Personal-use days do not count against material participation, which is measured in hours you work on the rental. They matter under the separate vacation-home rules, which limit deductions if you use the home personally for more than the greater of 14 days or 10% of the days it is rented. Days it was your principal residence before a conversion generally do not count toward that limit if you then rent or hold it for rent for at least 12 consecutive months.
- Property type and amenities. Pools, decks, and outdoor structures are classified differently than the main structure and can shift the reclassified percentage.
- Plans to sell. Depreciation you claim is taxed when you sell, even if the home-sale exclusion covers your gain. Reclassified 5-, 7-, and 15-year property is recaptured at ordinary income rates.
- State tax treatment. The federal deduction is the same, but your net after-tax benefit depends on your state's income tax rate.
- Documentation quality. Photos, contractor invoices, and tax assessor records from before and after the conversion date support a stronger, more audit-defensible allocation.
Do you need a new appraisal before ordering a cost segregation study on a converted primary home?
An appraisal is not required, but documenting fair market value at the conversion date, through a broker price opinion, appraisal, or comparable sales, gives your CPA a defensible number for Form 4562. Skipping this step is one of the more common gaps auditors flag on converted properties.
Can you use the STR loophole the same year you convert your home to an Airbnb?
It can, if the average guest stay for the year is 7 days or less and you meet a material participation test, such as working at least 100 hours on the rental and more than anyone else, including cleaners and co-hosts. A mid-year conversion leaves fewer months to log those hours, so keep a record from the start. Review the STR loophole rules for W-2 earners before counting on this for a mid-year conversion.
Is cost segregation still worth it if your home does not qualify for 100% bonus depreciation?
Usually, yes. Without a study, the whole building depreciates evenly over 27.5 years. A study moves 20% to 45% of the basis onto 5-, 7-, and 15-year schedules, which use accelerated methods that put most of those deductions into your first years as a rental. In the sample above, the study still adds about $13,144 of first-year depreciation with no bonus at all, and the 5-year property is fully written off within six tax years. Whatever bonus rate you do qualify for, 20% in 2026 for a home bought before January 20, 2025, comes on top of that.
How soon after converting can you order a cost segregation study?
A study can be ordered as soon as the property is placed in service as a rental, and turnaround typically runs 3 to 5 business days once records are submitted. Waiting until tax season narrows your options for gathering conversion-date documentation, so earlier is better.
FAQ
Can I get a cost segregation study after converting my primary home to an Airbnb?
Yes, a cost segregation study can be ordered any time after the home is placed in service as a rental. Studies typically reclassify 20% to 45% of a property's depreciable basis into 5-, 7-, and 15-year property. Those components get 100% bonus depreciation only if you acquired the home after January 19, 2025, but the shorter recovery periods accelerate your deductions either way.
What basis do you use for depreciation when converting a home to a rental?
You depreciate the lower of your adjusted cost basis (purchase price plus improvements, minus land) or the fair market value on the placed-in-service date. This often lowers the depreciable basis compared to your original purchase price if the home appreciated significantly.
Does personal use before conversion affect the STR loophole?
Not directly. Material participation is measured in hours you work on the rental, not days of personal use. Personal use matters under the vacation-home rules, but days the home was your principal residence before a conversion generally do not count if you then rent or hold it for rent for at least 12 consecutive months. The average guest stay must also be 7 days or less for the property to qualify as a short-term rental.
How long does a cost segregation study take after a primary home conversion?
A cost segregation study for a converted primary home typically takes 3 to 5 business days with no site visit required, since most single-family properties can be documented from purchase records, tax assessor data, and photos.
Is 100% bonus depreciation still available in 2026?
Yes, the One Big Beautiful Bill Act permanently restored 100% bonus depreciation for property acquired and placed in service after January 19, 2025. A primary home bought before January 20, 2025 does not qualify for 100% because you convert it later: converted in 2026 it gets 20%, and converted in 2027 or later it gets none. A cost segregation study still accelerates deductions through 5-, 7-, and 15-year depreciation.
Do I need an appraisal before ordering a cost segregation study on a converted home?
An appraisal is not required, but documenting fair market value at the conversion date helps establish the depreciable basis your CPA uses on Form 4562. A broker price opinion or comparable sales analysis often works instead.
Can a cost segregation study on a converted primary home trigger an audit?
An engineering-based cost segregation study is built to be defensible against the IRS Cost Segregation Audit Technique Guide. Ordering one does not, by itself, increase audit risk beyond any other significant depreciation claim.
One last thing
Most owners stop at the building reallocation and miss a second layer: furniture, appliances, and linens purchased to furnish the Airbnb after conversion are separate 5-year assets, and they stack on top of whatever percentage the cost segregation study reclassifies from the structure itself. A converted home furnished for guests in 2026 can generate two distinct waves of accelerated depreciation in the same tax year: the structural reallocation and the furnishing purchases. The furnishings can also get a better bonus rate than the house. New furniture and appliances bought after January 19, 2025 qualify for 100% bonus depreciation even when the home itself was bought earlier and gets 20%. Furniture you already owned and moved into rental use is dated to when you originally bought it.
