Frequently Asked Questions

Converting a rental or business property to personal use doesn't itself trigger bonus depreciation recapture. In the year you convert, you simply stop depreciating the property, and no gain, loss, or recapture is reported just for the conversion. Later, when you sell, the bonus (and other depreciation) you claimed earlier reduces your basis, so more of the sale price becomes taxable gain.

‍
For personal property components (like furniture and fixtures), that depreciation is generally recaptured as ordinary income under Section 1245. For the building and qualifying land improvements, bonus counts as accelerated depreciation, so the excess over straight line depreciation is recaptured as ordinary income under Section 1250, and any remaining gain is taxed as unrecaptured Section 1250 gain at up to 25%. The period the property was held for personal use in between doesn't prevent this recapture, it all happens at the time of sale if there's gain.

It depends on the facts, specifically how long guests typically stay. Many STRs are treated as residential rental property (27.5 years) when they meet the definition of a dwelling unit used for rental; however, if most stays are under 30 days, the property is treated as nonresidential (39 years) instead. The correct life requires reviewing your actual rental/booking history with your CPA.

In cost segregation, components are typically reclassified from 27.5/39-year real property into shorter-life buckets: 5-year (personal property, e.g., certain removable finishes/equipment), 7-year (some personal property categories depending on use/class life), and 15-year (land improvements, e.g., parking lots, sidewalks, landscaping/irrigation, site lighting, fencing). The exact breakdown depends on the engineering analysis and asset details.

Yes, here's the partners page with details: https://www.recostseg.com/partners

Depreciation recapture rules are complex and depend on the type of property, holding period, and transaction structure. Here's a detailed explainer: https://www.recostseg.com/post/depreciation-recapture-explained

In general, core structural components (e.g., foundations, structural framing, load-bearing walls, roofs, etc.) are typically not eligible to be reclassified into shorter-life personal property categories. Asset-specific classification can vary based on facts and engineering/tax analysis.

Here's a detailed explanation of audit/scrutiny considerations and best practices: https://www.recostseg.com/post/irs-audit-cost-segregation

Tenant improvements are build-outs or upgrades made to a leased space (often to customize it for a specific tenant). Depending on what the improvements are, they may be treated differently for depreciatio, some components may be eligible for shorter recovery periods and/or bonus depreciation. More detail: https://www.recostseg.com/post/retail-cost-seg-tenant-improvements