Short-Term Rental Cost Segregation

Can short-term rental losses offset my W-2 income?

Yes, a short-term rental’s loss, including the depreciation a cost segregation study accelerates, can offset wages and other nonpassive income, but only when the property’s average period of customer use for the year is seven days or less (so that under Treas. Reg. §1.469-1T(e)(3)(ii)(A) it is not a rental activity), the taxpayer materially participates in it under one of the seven tests in Treas. Reg. §1.469-5T(a) (for example, more than 500 hours in the year, or more than 100 hours and not less than any other individual), and only to the extent the basis, at-risk (§465) and excess business loss (§461(l)) limits also allow it; the regulation’s other exceptions, such as an average stay of 30 days or less with significant personal services, are separate tests.

What is material participation and do I qualify?

Material participation means you are involved in the rental on a regular, continuous, and substantial basis — Treas. Reg. §1.469-5T(a) sets out seven tests, among them more than 500 hours in the year, or more than 100 hours and not less than any other individual (a cleaner or property manager who works more hours than the owner defeats that second test). Whether an owner-operator meets a test turns on the hours the owner can document, so your CPA should have them recorded as the work is done.

How much of a furnished STR can be reclassified?

Furnished short-term rentals carry more short-life property than an unfurnished rental. Furniture, appliances, fixtures, décor, and electronics typically land in 5-year property; driveways, patios, outdoor pools, fencing, and landscaping in 15-year. We do not publish a planning band for short-term rentals, so the share of the depreciable basis (purchase price plus construction costs, less land) that moves out of the structural schedule comes from the property's own cost detail.

How much does an STR cost segregation study cost?

The $499* cost segregation workpaper covers a rental property, ordered by the owner or by a CPA or advisor for a client (*for a property whose purchase price plus construction costs total under $2.0 million). Our $15,000 study covers a property whose purchase price plus construction costs total up to $250 million; an owner whose property is under $2.0 million is offered the workpaper instead. Above $250 million in purchase price plus construction costs, the study is scoped on a call with an advisor, and if you are not sure of the figure, Howard reaches out personally.

Other providers’ published prices for multifamily and short-term rentals, each read on the provider’s own page, are compared in best cost segregation for multifamily and short-term rentals.

Is the STR loophole a recognized tax strategy?

Yes, when the rental's average guest stay is seven days or less and the owner materially participates — the strategy relies on IRC §469 and Temp. Treas. Reg. §1.469-1T(e)(3)(ii)(A) for non-passive activity classification and the IRS Cost Segregation Audit Techniques Guide for asset reclassification. Our studies follow the ATG methodology — full asset detail, engineering rationale, and supporting documentation — so every deduction traces back to its source.

Does bonus depreciation apply to STR cost segregation?

Yes, for the 5-year and 15-year property a cost segregation study identifies, at the rate its acquisition date allows. Bonus depreciation under IRC §168(k) is 100%, permanently, for qualified property acquired after January 19, 2025 (OBBBA, 2025-07-04), or, for self-constructed property, whose construction began after that date; qualified property acquired on or before that date stays on the TCJA phase-down (as does self-constructed property begun on or before it) by placed-in-service year: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% after that, with each rate one year later for long-production-period property and certain aircraft (§168(k)(6)(B)). For that test the acquired date is not the closing date: under IRS Notice 2026-11 property bought under a written binding contract is acquired on the latest of the date the contract was signed, the date it became enforceable under state law, the end of any cancellation period and the date any contingency was satisfied, under a contract that is not binding (for example, one that limits damages to a specified amount) it is generally when more than 10 percent of the total cost, excluding land and preliminary activities, has been paid or incurred, and self-constructed property, including property built for the taxpayer under a written binding contract signed before construction began, is acquired when physical work of a significant nature begins (Treas. Reg. §1.168(k)-2(b)(5)); and used property qualifies only if the taxpayer had not used it at any time before acquiring it and the acquisition meets the §179(d) purchase rules that §168(k)(2)(E)(i) applies (for example, it was not acquired from a related party, by gift or inheritance, or with a carryover basis). Whether that first-year deduction offsets wages is a separate question, decided by the seven-day average stay and material participation tests of Treas. Reg. §1.469-1T(e)(3)(ii)(A) and §1.469-5T(a).

Is ClickDrag Finance's short-term rental cost segregation study engineering-based?

In its method, yes, for the study: ClickDrag Finance's short-term rental study applies an engineering principles-based methodology to your documents and photographs. The $15,000 cost segregation study is document-driven: it applies an engineering principles-based methodology, the cost classification approach described in the IRS Cost Segregation Audit Techniques Guide (Publication 5653), to the property's own documents and to photographs linked to the components they support, with a qualified human review of every component. The $499* workpaper is a separate product: a residual-estimation workpaper prepared from the documents and photographs the buyer provides. It is a workpaper for the taxpayer's tax preparer, prepared from the information the buyer provides, reviewed before release. *For a property whose purchase price plus construction costs total under $2.0 million.