Cost Segregation for a Short Term Rental
A short term rental is depreciable rental property, and a cost segregation study identifies its furniture, appliances, finishes and site work for the shorter 5 and 15 year lives. Two questions shape the result and your CPA answers both from your facts: which recovery period the building takes, and how the deduction can be used. This page prints the rules from their sources and shows an example computed at both building lives.
27.5 Years or 39 Years
Whether the building counts as residential rental property turns on how its units are used. The wizard asks whether the units are normally rented for periods under 30 days, our estimate uses the answer, and the study discloses it.
- A building is residential rental property only if 80 percent or more of its gross rental income is from dwelling units. A dwelling unit does not include a unit in a hotel, motel or other establishment where more than one half of the units are used on a transient basis. Section 168 does not define transient basis or state a number of days. Source: IRC section 168(e)(2)(A)(i) and (ii)(I)
- The 30 day figure comes from Treas. Reg. 1.48-1(h)(2)(ii), an investment credit regulation on hotel and motel property, not from section 168. It says accommodations are used on a transient basis if the rental period is normally less than 30 days. Paragraph (h)(1)(i) of the same regulation contains no 30 day language. Source: Treas. Reg. section 1.48-1(h)(2)(ii)
The 7 Day Average Stay Rule
A separate rule, under the passive activity regulations, looks at the average guest stay. It is separate from the question of the building's depreciation life and decides how the deductions can be used on your return.
- An activity involving the use of tangible property is not a rental activity for a tax year if the average period of customer use is seven days or less. Source: Temp. Treas. Reg. section 1.469-1T(e)(3)(ii)(A)
- An activity is also not a rental activity if the average period of customer use is 30 days or less and significant personal services are provided by or on behalf of the owner. Services similar to those commonly provided with long term rentals, such as cleaning common areas, routine repairs and trash collection, do not count. Source: Temp. Treas. Reg. section 1.469-1T(e)(3)(ii)(B) and (e)(3)(iv)
- 240 nights over 60 stays averages 4 days: 7 days or less
- 240 nights over 20 stays averages 12 days: More than 7 days
Using the Deduction
The study does not decide whether a loss from the property can be used against other income; that depends on the material participation tests and your records, and your CPA makes that call. It is not a promise that losses will reduce your wages or other income.
- A passive activity is a trade or business in which the taxpayer does not materially participate, and it includes any rental activity except as provided for real estate professionals. An activity that falls outside the rental definition is tested under the material participation rules instead. Source: IRC section 469(c)(1) and (c)(2)
- An individual materially participates by meeting any one of seven tests: (1) more than 500 hours; (2) substantially all of the participation in the activity; (3) more than 100 hours and not less than any other individual; (4) significant participation activities totaling more than 500 hours; (5) material participation in any five of the ten preceding tax years; (6) a personal service activity with material participation in any three preceding tax years; (7) regular, continuous and substantial participation on the facts and circumstances. For income and loss from a limited partnership interest, an individual can use only the first, fifth and sixth of these tests. Source: Temp. Treas. Reg. section 1.469-5T(a)(1) through (7) and (e)(1) and (2)
- In deciding whether a taxpayer materially participates, the participation of the taxpayer's spouse is counted. Source: IRC section 469(h)(5)
One Property, Both Building Lives
The same invented short term rental, computed twice by the estimate engine: once with the units normally rented for 30 days or more, once with the units normally rented for periods under 30 days. Only the building life changes between the two runs.
| Item | Amount |
|---|---|
| Land value | $97,500 |
| Building basis | $552,500 |
| Moved to the 5 year class | $85,085 |
| Moved to the 15 year class | $36,465 |
| Left on the 27.5 year life | $430,950 |
| Share of the building basis moved | 22% |
| First year depreciation without a study | $20,091 |
| First year depreciation with a study | $137,221 |
| Additional first year deduction | $117,130 |
| Conservative | Middle of the Road | Aggressive |
|---|---|---|
| $99,952 | $137,221 | $179,814 |
| Item | Amount |
|---|---|
| Land value | $97,500 |
| Building basis | $552,500 |
| Moved to the 5 year class | $85,085 |
| Moved to the 15 year class | $36,465 |
| Left on the 39 year life | $430,950 |
| Share of the building basis moved | 22% |
| First year depreciation without a study | $14,167 |
| First year depreciation with a study | $132,600 |
| Additional first year deduction | $118,433 |
| Conservative | Middle of the Road | Aggressive |
|---|---|---|
| $94,917 | $132,600 | $175,667 |
Illustrative example computed by our estimate engine for an invented Airbnb / Short-Term Rental at 4 Fixture Cove, Testville, ZZ 00000: purchase price $650,000, $97,500 assigned to land (15.0%), placed in service January 1, 2026, at the Middle of the Road position with 100% bonus. Results vary with property specifics and your tax situation.
Less to land means more to depreciate, so a low land value is the aggressive land position.
The ZZ 00000 marker means invented: these figures are an illustration for the inputs shown, not a result for any real property.
Questions people ask
Does a short term rental qualify for a study?
- Generally, yes. A short term rental is depreciable rental property, and a cost segregation study identifies its furniture, appliances, finishes and site work for the shorter 5 and 15 year lives.
Which answer sets the building life in the estimate?
- The wizard asks whether the units are normally rented for periods under 30 days. In our estimate a yes gives the 39 year life and a no keeps 27.5 years, and the study states the answer it used.
Does the average stay change the depreciation?
- No. It is a passive activity rule under section 469 of the tax code, separate from the question of the building's depreciation life. The facts above say what the rule is, and your CPA applies it.
The rules on this page were checked against their sources on October 1, 2026.
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The wizard asks the questions for your property and routes it to the right lane.