STR Tax Savings Calculator

Understanding Depreciation & Cost Segregation

39-Year vs. 5-Year Property

By default, the IRS requires you to depreciate a rental property using the straight-line method — 27.5 years for traditional long-term residential rentals, or 39 years for commercial properties. However, most short-term rentals (Airbnbs) actually fall into the 39-year class. Under IRC § 168(e)(2)(A), a property only qualifies for the 27.5-year "Residential Rental Property" classification if 80% or more of gross rental income comes from "dwelling units." The tax code excludes units used on a transient basis from being dwelling units — and if more than half of your occupied rental days involve guests staying less than 30 days, your unit is transient. This means most STRs face the slower 39-year schedule at baseline, making cost segregation even more impactful.

A cost segregation study changes this equation. By identifying components within the property that qualify for shorter recovery periods (5, 7, or 15 years), a significant portion of the basis is reclassified. Personal property like furniture, appliances, and smart home systems falls into the 5-year class. Land improvements like landscaping, fencing, and driveways fall into 15 years. The result is dramatically accelerated deductions in the early years of ownership.

Why Bonus Depreciation Matters

Bonus depreciation allows you to deduct a percentage of eligible short-life assets in the first year they're placed in service. Under the Tax Cuts and Jobs Act, this was 100% through 2022, and is currently phasing down (80% in 2023, 60% in 2024, 40% in 2025). Even at reduced rates, combining cost segregation with bonus depreciation can create a substantial first-year paper loss.

For short-term rental investors using the STR Loophole, this paper loss isn't just sitting on a schedule — it can actively offset W-2 wages and business income. That's the real power of cost segregation: turning a long-term trickle of deductions into an immediate, high-impact tax reduction.

Why This Calculator Is Just an Estimate

Every property is different. The percentage of assets that can be reclassified depends on the specific construction, furnishings, and site improvements. This calculator uses industry averages to give you a ballpark figure. For an exact number based on your property, request a free feasibility analysis from our engineering team.

Already own an STR and filed taxes? You may be able to catch up on missed depreciation using Form 3115 without amending prior returns.