By Virtual Cost Segregation
The best cost segregation study provider for rental property investors
Built to IRS standards
Audit support includedFlat price for every study3 to 5 business days Combining cost segregation with bonus depreciation lets short-term rental owners write off a large chunk of a property's cost in the year they place it in service, instead of spreading it over 27.5 or 39 years. Property acquired and placed in service after January 19, 2025 qualifies for 100% bonus depreciation under the One Big Beautiful Bill Act (OBBBA), so a 2026 purchase gets the full first-year rate.
- Cost segregation bonus depreciation on short term rentals lets owners deduct reclassified assets in year one instead of over 27.5 years.
- OBBBA restored 100% bonus depreciation for property acquired and placed in service after January 19, 2025, so 2026 purchases qualify at the full rate.
- A residential cost segregation study typically reclassifies 20% to 45% of a property's depreciable basis into 5, 7, and 15-year assets.
- The STR loophole requires material participation and average guest stays of 7 days or less to offset W-2 income with these deductions.
- A flat-fee engineering-based study runs $2,200 and takes 3 to 5 business days with no site visit required.
Why This Matters
A rental building depreciates over 27.5 years if it's residential. Cost segregation breaks that single number into components, land improvements, personal property, and structural elements, many of which depreciate over 5, 7, or 15 years instead of 27.5. Bonus depreciation then lets you deduct those shorter-life assets in the year the property goes into service rather than stretching them out.
For short-term rental owners using the STR loophole, this combination is the mechanism that turns a rental property into an active tax offset against W-2 income, provided material participation rules are met. High W-2 earners in the 37% tax bracket see the biggest dollar impact because every dollar reclassified and deducted reduces taxable income at that top rate.
None of this is guaranteed. A calculator or manual estimate gives you a range based on typical outcomes, not a promise of a specific dollar figure, and results depend on the property's actual components and how your CPA applies the study.
How Cost Segregation and Bonus Depreciation Work Together for Short-Term Rentals
Here's the mechanic in a single example. Say you buy a short-term rental for $500,000, with $100,000 allocated to land and $400,000 to the building and its components.
A cost segregation study on that property might reclassify 25% of the depreciable basis, a figure consistent with the 20% to 45% range typical for residential rentals, into 5, 7, and 15-year property. That's $100,000 moved out of the 27.5-year bucket.
| Step | Amount |
|---|---|
| Purchase price | $500,000 |
| Land value (non-depreciable) | $100,000 |
| Depreciable basis | $400,000 |
| Reclassified at 25% | $100,000 |
| Bonus depreciation deduction (100%) | $100,000 |
| Tax savings at 37% bracket | $37,000 |
At a 37% tax bracket, that $100,000 first-year deduction translates to roughly $37,000 in reduced tax liability, assuming the STR loophole conditions are met and the losses can offset active income. Without bonus depreciation, that same $100,000 would depreciate over 5 to 15 years instead of landing in year one.
100% Bonus Depreciation: Full First-Year Write-Off for 2025 and 2026 Purchases
Property acquired and placed in service after January 19, 2025 qualifies for 100% bonus depreciation under OBBBA. That means every dollar of reclassified 5, 7, and 15-year property from a cost segregation study is fully deductible in the first year, no phase-down, no partial percentage.
For a 2026 purchase, this is the number that matters most: if your study reclassifies $100,000 into short-life assets, all $100,000 is available as a deduction in the tax year the property is placed in service, subject to passive activity and material participation rules.
60% and Lower Rates: What Applied Before OBBBA Restored 100%
Bonus depreciation phased down after the Tax Cuts and Jobs Act's 100% rate expired. It stepped to 80% for property placed in service in 2023, 60% for 2024, and was scheduled to drop further before OBBBA reset it back to 100% for property acquired and placed in service after January 19, 2025.
If you placed a property in service in 2024 at 60% bonus depreciation, that reclassified $100,000 example above would have generated an $60,000 first-year deduction instead of $100,000, with the remaining $40,000 depreciating on its normal 5, 7, or 15-year schedule. Owners in that position sometimes ask about catching up missed depreciation through an accounting method change, which is a separate CPA-facing question from the bonus rate itself.
Why the Reclassified Percentage Varies
The 20% to 45% range isn't arbitrary. A handful of factors push a property toward the high or low end:
- Property type: a furnished cabin or condo with amenities reclassifies differently than a bare single-family rental
- Amenities and furnishings: hot tubs, decks, and furniture packages often land in 5 or 7-year buckets
- Land-to-building ratio: a higher land value shrinks the depreciable basis available to reclassify
- Age and renovation history: recently renovated properties often have more identifiable short-life components
- Purchase price allocation: how the closing statement splits land, building, and personal property affects the starting basis
- Property size and complexity: larger properties with more distinct systems tend to yield more granular reclassification
Related Questions Short-Term Rental Owners Ask
Does the STR loophole require bonus depreciation?
No, the STR loophole and bonus depreciation are separate mechanisms that work together. The loophole is about material participation and average stay length qualifying rental losses as non-passive; bonus depreciation is what makes those losses large enough in year one to matter against W-2 income.
Can I use cost segregation if I bought my rental before January 19, 2025?
Yes, a cost segregation study can be ordered on a property you've owned for years, and a CPA can apply catch-up depreciation through Form 3115 without amending prior returns. The bonus depreciation rate that applies depends on the property's original placed-in-service date, not the date you order the study.
How much of my short-term rental can I write off in year one?
Roughly 20% to 45% of the depreciable basis is what a typical residential cost segregation study reclassifies into short-life property, and at 100% bonus depreciation for 2025 and 2026 placements, that full reclassified amount is deductible in year one. Actual results depend on the specific property and how the study is implemented.
Get Your Flat-Fee Study Started
Engineering-based residential study, $2,200 flat fee, 3-5 business day turnaround.
FAQ
How much does cost segregation on a short-term rental cost in 2026?
A flat-fee engineering-based residential cost segregation study runs $2,200 in 2026, covering properties like Airbnbs, VRBOs, and single-family rentals. Pricing structures vary by provider, and percentage-based fee models exist as an alternative.
Is bonus depreciation 100% in 2026?
Yes, bonus depreciation is 100% for property acquired and placed in service after January 19, 2025 under OBBBA, which covers any property bought and placed in service in 2026. Property placed in service earlier, such as in 2024, used the 60% rate.
What percentage of a rental property gets reclassified in a cost segregation study?
Residential cost segregation studies typically reclassify 20% to 45% of the depreciable basis into 5, 7, and 15-year property. The exact percentage depends on the property type, age, and amenities.
Do I need to visit the property for a cost segregation study?
No, engineering-based studies can be completed without a site visit using photos, floor plans, and closing documents. Accuracy depends on the quality of documentation provided, not a physical inspection.
Can bonus depreciation from a short-term rental offset W-2 income?
Yes, if the owner meets material participation requirements and the property qualifies under the STR loophole, losses generated by bonus depreciation can offset active W-2 income. This depends on hours logged and average guest stay length, not just ownership.
How long does a cost segregation study take to complete?
A residential cost segregation study typically takes 3 to 5 business days once documentation is submitted. Complex properties or delayed document collection can extend that timeline.
Does cost segregation work on a property bought with a mortgage?
Yes, cost segregation and bonus depreciation apply to the property's basis regardless of financing structure, whether purchased with a mortgage or cash. The depreciation deduction is separate from loan interest deductions.
What happens to bonus depreciation when I sell the rental?
Bonus depreciation taken against a property is subject to depreciation recapture when you sell, taxed at rates up to 25% on the recaptured section 1250 portion. Strategies like a 1031 exchange can defer that recapture.
One Last Thing
The date that decides your bonus depreciation rate isn't the date you order the cost segregation study, it's the date the property was placed in service. A property placed in service on January 18, 2025 falls under the old phased rate, while one placed in service a single day later on January 19, 2025 qualifies for the full 100% under OBBBA. That one-day line has shown up in real ownership timing questions, so if you're closing near a year-end or acquisition date in 2026, confirm the placed-in-service date on your closing documents before assuming which rate applies.
