The short-term rental market is on fire—and so are the opportunities to save on taxes. If you’re earning income from a property on Airbnb, VRBO, or another platform, you might be missing out on a huge benefit: cost segregation. This tax strategy can lower your tax bill and improve your cash flow, especially when paired with smart planning.
So, What Exactly Is Cost Segregation?
Think of it like this: instead of depreciating your entire property slowly over 27.5 or 39 years, a cost segregation study lets you split the property into faster-depreciating parts. Items like flooring, appliances, and lighting may qualify for 5, 7, or 15-year depreciation—giving you bigger deductions, sooner.
Can You Use It for a Short-Term Rental?
Yes, in most cases! As long as your short-term rental is treated as income-producing property for tax purposes, you’re likely eligible. Just know that how the IRS views your rental—residential vs. nonresidential—can affect your depreciation schedule. Services like daily cleaning or meal prep may push it into “nonresidential” territory, which opens up some additional options.
What About Bonus Depreciation?
Bonus depreciation is still around in 2025 (at 60%), and when paired with cost segregation, it can supercharge your deductions. But the clock is ticking—it’s scheduled to fully phase out by 2027. If you’ve recently purchased or improved a short-term rental, now’s a great time to act and maximize those upfront deductions.
Are You Passive or Active in Your Rental?
This matters more than most owners realize. If you actively manage your STR—like setting prices, communicating with guests, and handling the bookings—you might qualify as a material participant. That means your deductions could offset other income, not just rental income. This can make a huge difference in your tax outcome.
Here’s How It Might Work in Real Life
Let’s say you buy a $750,000 vacation home and spend $50,000 sprucing it up. A cost segregation study could potentially reclassify $200,000 of that into faster depreciation categories. If you qualify for bonus depreciation, that might mean a $120,000+ deduction in year one. That’s real savings.
Bottom Line: This Strategy Pays to Explore
Short-term rentals are a hot investment—and tax savings can be part of the payoff. A well-executed cost segregation study helps you take advantage of deductions you’re already entitled to but might not be using yet. It’s a smart move whether you’re a full-time investor or just testing the waters.
Curious what kind of savings your property might unlock?
Let’s talk. Our team is ready to run the numbers and show you what’s possible.
