Cost segregation on a short-term rental reclassifies furnishings, appliances, interior finishes, and site improvements out of the 39-year schedule that applies to most short-term rentals and into 5-, 7-, and 15-year property. Because a furnished short-term rental carries far more personal property than a comparable long-term rental, it typically sits at the upper end of the range for its asset class.

This page covers the mechanics of the study itself: what gets reclassified, how much, what the first-year deduction looks like, and what a study costs. For the passive activity rules that determine whether you can use the resulting loss against W-2 income, see the section below on how the study interacts with the short-term rental exception.

Can you do cost segregation on a short-term rental?

Yes. A short-term rental is depreciable residential or nonresidential real property depending on how it is used, and a cost segregation study applies to it the same way it applies to any other income-producing building. There is no separate rule that excludes short-term rentals, and no minimum property value in the tax code.

Most short-term rentals are nonresidential. IRS Publication 946 excludes from residential rental property any unit in an establishment where more than half the units are used on a transient basis, and the IRS treats average guest stays of less than 30 days as transient. A single-family home or condo operated on Airbnb or VRBO is therefore generally 39-year nonresidential real property, not 27.5-year residential rental property, which makes accelerating its shorter-life components even more valuable.

What is specific to short-term rentals is the asset mix. A furnished rental is bought and operated with a large quantity of tangible personal property already in place, and that property is Section 1245 property with a 5- or 7-year recovery period rather than Section 1250 real property depreciated over 39 years.

Whether the accelerated deduction can offset your active income is a separate question governed by the passive activity loss rules. The study produces the deduction; the participation rules determine where you can use it.

What gets reclassified in a short-term rental

An engineering-based study walks the property and assigns each component to its correct recovery period. In a short-term rental, the categories break down like this.

5-year property

• Beds, mattresses, case goods, seating, and dining furniture
• Kitchen appliances, cookware, and small appliances
• Televisions, sound systems, routers, and smart locks
• Window treatments, rugs, lamps, and decorative fixtures
• Linens and towels held for guest use

7-year property

• Outdoor and patio furniture
• Game room and recreational equipment
• Grills and outdoor kitchen equipment not permanently affixed

15-year land improvements

• Driveways, walkways, and parking areas
• Pool and spa equipment, decking, and surrounds
• Landscaping, irrigation, and retaining walls
• Fencing and exterior lighting

Stays on the 39-year schedule

• Structural shell, roof, framing, and foundation
• Building-level electrical, plumbing, and HVAC serving the structure
• Interior walls, windows, and doors

Land is not depreciable and is carved out of the basis before any of this happens.

How much gets reclassified

Reclassification percentage is the combined share of 5-, 7-, and 15-year property as a percentage of depreciable basis, not purchase price. Depreciable basis is the purchase price less land value, so quoting the percentage against the purchase price understates what the study actually delivers.

How much you can expect is driven by the asset class of the building, not by the fact that it is rented short-term. Short-term rentals span several classes, and the spread between them is wide:

• Condo unit — 33% baseline, 53% optimal
• Single-family home — 27% baseline, 38% optimal
• Multi-family, 2–4 units — 26% baseline, 35% optimal
• Tiny house — 20% baseline, 35% optimal
• Accessory dwelling unit — 20% baseline, 32% optimal
• Cabin — 15% baseline, 29% optimal
• Townhouse — 19% baseline, 29% optimal

A condo unit reclassifies at close to twice the rate of a cabin, so identifying the class correctly matters more than any other single input. One exception worth knowing: a cabin with a pool, marine dock, or other built site amenities can take single-family 15-year percentages.

Where a specific property lands inside its own range depends mostly on two things:

• Whether furnishings conveyed at purchase. A turnkey furnished purchase carries the personal property in the acquisition basis and lands at or near the optimal figure. An unfurnished purchase you furnish afterward puts those assets on a separate schedule at your own cost, which is still fully depreciable but is not part of the study's reclassification percentage.
• Site development. A property with a pool, extensive hardscape, or significant landscaping pushes the 15-year bucket higher. A townhouse on a small lot has almost no land improvements to find.

The optimal figure for your asset class is the practical ceiling. A result above it is worth questioning — that usually indicates either that land value has been understated or that separately purchased furnishings have been folded into a figure that should reflect the acquisition basis alone. Because the ceiling moves with the class, there is no single percentage that applies across residential short-term rentals: 53% is unremarkable on a condo unit and implausible on a cabin.

What the first-year deduction looks like

Take a $450,000 furnished single-family short-term rental placed in service in 2026:

• Purchase price: $450,000
• Land value: $90,000
• Depreciable basis: $360,000

A turnkey furnished single-family property reclassifying at its 38% optimal produces:

• 5-year property: $104,400 (29%)
• 15-year property: $32,400 (9%)
• 39-year property: $223,200 (62%)

With 100% bonus depreciation, the entire $136,800 in 5- and 15-year property is deductible in year one. The remaining $223,200 depreciates over 39 years at $5,723 per year, prorated in the first year under the mid-month convention.

Before that first-year proration, depreciation runs to roughly $142,500 with a study, against about $9,200 without one. That is an additional first-year deduction of roughly $133,300.

At a 35% marginal rate, that additional deduction reduces the current-year tax bill by about $46,700. Against a fully engineered residential study fee of $2,320, the first-year return is roughly 20 times the cost of the study.

The same property as a condo unit, at a 53% optimal, would reclassify $190,800 instead of $136,800. As a cabin, at 29%, it would reclassify $104,400. Same basis, same furnishings, materially different outcome.

One thing to be clear about: this is acceleration, not forgiveness. You are claiming depreciation sooner, not claiming more of it in total. The benefit is the time value of money and the ability to match deductions against a high-income year — plus, in the short-term rental case, the ability to use the loss against active income if you materially participate.

Bonus depreciation on short-term rentals

The One Big Beautiful Bill Act made 100% bonus depreciation permanent for property acquired and placed in service after January 19, 2025. Every asset a study moves into a recovery period of 20 years or less is eligible, which is what makes the first-year figure above possible.

Property under a written binding contract entered into before January 20, 2025 stays on the prior phase-down schedule even if it is placed in service later. Used property qualifies, which matters because most short-term rentals are existing homes rather than new construction.

If you already own the property and never had a study done, a look-back study captures the depreciation you missed in prior years. You claim the cumulative catch-up in a single tax year via Form 3115 rather than amending returns.

How the study interacts with the short-term rental exception

A cost segregation study produces a much larger first-year loss. Whether you can deduct that loss against W-2 or business income depends on the passive activity rules, not on the study.

Rental activity is passive by default. A short-term rental can fall outside the tax code's definition of a rental activity when the average period of customer use is seven days or less, under Reg. §1.469-1T(e)(3)(ii)(A). Clearing that hurdle alone is not enough — the owner must also materially participate in the activity. Our guide to material participation for short-term rentals covers how STR owners meet the tests, the documentation standards, and when the loss becomes non-passive.

If neither the seven-day exception nor real estate professional status applies, the accelerated loss is still generated and still valuable. It suspends and carries forward, offsetting future passive income or releasing on disposition of the property.

What a study costs and how long it takes

R.E. Cost Seg prices short-term rental studies from $950 for a Rapid Report and from $2,320 for a fully engineered residential study. Larger properties are priced above those starting points.

Turnaround is 5 business days for a Rapid Report and 15–20 business days for a fully engineered study, measured from engagement rather than from the point where document gathering finishes.

The practical difference is audit defensibility. A fully engineered study documents each component with engineering support consistent with the IRS Audit Techniques Guide. On a short-term rental where you are also taking a material participation position, that documentation quality matters more than it does on a passive long-term hold, because the whole return position gets examined together.

What happens when you sell

Accelerated depreciation is recaptured on disposition. The 5- and 7-year personal property is Section 1245 property, recaptured as ordinary income to the extent of depreciation claimed. The 39-year building components remain Section 1250 property, and straight-line depreciation on them is taxed as unrecaptured Section 1250 gain at a maximum 25% rate.

Furnishings depreciate economically as well as on paper, so a five-year-old mattress carries little real value at sale even though its full original cost is subject to recapture. Read our full explanation of depreciation recapture before selling a property you have run a study on, and note that a 1031 exchange can defer some or all of the gain on the real property but doesn't eliminate it, and Section 1245 recapture on the personal property can still apply.

Key takeaways

• Cost segregation applies to short-term rentals with no special restriction; the difference is asset mix, not eligibility
• Most short-term rentals are 39-year nonresidential property under the transient-use rule, not 27.5-year residential rental property
• Furnishings, appliances, and electronics are 5-year property; outdoor furniture and recreational equipment are 7-year; pools, hardscape, and landscaping are 15-year
• Reclassification is driven by asset class, not rental term: condo units run 33–53%, single-family homes 27–38%, 2–4 unit multi-family 26–35%, tiny houses 20–35%, ADUs 20–32%, cabins 15–29%, townhouses 19–29%
• Reclassification percentage is measured against depreciable basis, not purchase price
• Furnished turnkey purchases and developed sites land at the optimal end of their class
• The optimal figure for the class is the practical ceiling; a result above it warrants a second look at land allocation
• 100% bonus depreciation is permanent for property acquired and placed in service after January 19, 2025
• The study creates the deduction; material participation determines whether you can use it against active income
• Studies start at $950 (Rapid Report) or $2,320 (fully engineered residential), delivered in 5 or 15–20 business days

Want to see the numbers on your own property? Get a free proposal from R.E. Cost Seg, or run a quick estimate with our short-term rental depreciation calculator.