Questions re cost segregation study for STR
Toms River, NJ · Member since 2016 · 21 posts · 11 votes
Questions re cost segregation study for STR
Most Popular Reply
Member since 2025 · 1 post · 2 votes
7moThis post is a great read, I am also looking into this but I keep find contradicting information. I spoke to a tax professional friend of the family and she mentioned if your income is over $150k yearly on your W2 that the this whole STR loophole wont be deduct able against my personal W2. She sent me some information:
"However, if you “actively participate” in the residential rental activity, you may be able to deduct a loss of up to $25,000 in a tax year against nonpassive income. You actively participate in the rental activity if you make important management decisions, such as approving new tenants, deciding on rental terms, approving capital expenditures. You also can show active participation by arranging for others to provide services. You need not have regular, continuous, and substantial involvement with the property. Between $1000,000 and $150,000 of adjusted grow income, the allowance phases out, meaning you can deduct a reduced amount. Over $150,000, the deduction is completely eliminated, unless you qualify as a real estate professional."
I am planning on meeting with a local CPA to discuss so help me understand this better. The main benefit for purchasing a STR would be the tax savings on my W2 after a cost seg. If this is not possible I will stick with a long term rental as my next investment.
18 Replies
- 1yBill HamptonBusiness MemberAccredited Investment Fiduciary, AIF®, Financial Planner, Tax Strategist, Real Estate Investor · Atlanta, GA · Member since 2012 · 2k+ posts · 977 votes
Quote from @Nicole Cotrino:
My spouse and I purchased a cabin in November 2023 as a STR and started renting it out in March of this year. I've been hearing a lot about cost segregation studies and have a few questions…
- What are some of the key factors that determine whether a cost segregation study makes sense? (I’m still trying to understand the basics!)
- We are going to start searching for a CPA with a lot of experience in STRs, but haven't found one yet. Would the best first step be to find a good STR CPA or to first focus on finding a good cost segregation firm?
- Will we substantially diminish the benefits of a cost segregation study if we don’t get it done before the end of the year?
- Any recommendations on how to vet CPAs and cost segregation firms? Or, any suggestions on specific companies to use?
Thank you!
Key factors: Do you materially participate in managing the property? How many hours do you spend managing the property vs. others, etc?
You should find a real estate accountant first. They can help you find a good cost segregation firm and get you a free estimate.
Bonus depreciation from a cost segregation study is 60% for 2024. It goes down to 40% in 2025, so it will definitely benefit you to get it done before the end of year.
Ask your potential accountant do they own rental properties, do they specialize in real estate taxation, how many years of experience do they have, etc.
Good luck.
Hampton Tax and Financial Services LLC4.7106 Reviews - 1yBasit SiddiqiBusiness MemberAccountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
A cost segregation study looks at a property you own to breakdown the various assets you purchased.
The goal is to increase the depreciation expense by finding assets that have an asset life less than 27.5(residential) or 39 years(non-residential).
Whether you should get a cost segregation study done is whether you will benefit from the study.
Will you be able to use the added depreciation now or in the near future?
If its just gonna be added as a passive loss and not eligible to be used now or in the near future, I would not get it done.
best of luck
Basit Siddiqi CPA4.979 Reviews - Toms River, NJ · Member since 2016 · 21 posts · 11 votes1y
Thank you both for the feedback! We will be showing material participation so that we can deduct from our W2 employment. My understanding is that one of the ways we can do that is to show that we spent 100+ hours actively working on, or managing, the property - and that our time working on it exceed the amount of time any other person spent working on it. Does it have to be 100+ hours for one of us individually, or can it be 100+ hours for my spouse and I combined? Also, and thoughts on how detailed our documentation of the time spent needs to be? Of course we will ask these questions to our CPA as well, but would really love any feedback. Thanks again!
- 1ySean GrahamBusiness MemberInvestor , CPA · Detroit, MI · Member since 2016 · 582 posts · 248 votesBenefits of cost segregation really come down to personal tax positions… they can definitely help you lower taxable income but it’s situationally dependent.
Quote from @Nicole Cotrino:
My spouse and I purchased a cabin in November 2023 as a STR and started renting it out in March of this year. I've been hearing a lot about cost segregation studies and have a few questions…
- What are some of the key factors that determine whether a cost segregation study makes sense? (I’m still trying to understand the basics!)
- We are going to start searching for a CPA with a lot of experience in STRs, but haven't found one yet. Would the best first step be to find a good STR CPA or to first focus on finding a good cost segregation firm?
- Will we substantially diminish the benefits of a cost segregation study if we don’t get it done before the end of the year?
- Any recommendations on how to vet CPAs and cost segregation firms? Or, any suggestions on specific companies to use?
Thank you!
The STR loophole can help you offset other active income. Even without that, it can help you offset capital gains from the sale of real estate or passive real estate income.
Maven Cost Segregation Tax Advisors555 Reviews - Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes1y
Quote from @Sean Graham:
Benefits of cost segregation really come down to personal tax positions… they can definitely help you lower taxable income but it’s situationally dependent.Quote from @Nicole Cotrino:
My spouse and I purchased a cabin in November 2023 as a STR and started renting it out in March of this year. I've been hearing a lot about cost segregation studies and have a few questions…
- What are some of the key factors that determine whether a cost segregation study makes sense? (I’m still trying to understand the basics!)
- We are going to start searching for a CPA with a lot of experience in STRs, but haven't found one yet. Would the best first step be to find a good STR CPA or to first focus on finding a good cost segregation firm?
- Will we substantially diminish the benefits of a cost segregation study if we don’t get it done before the end of the year?
- Any recommendations on how to vet CPAs and cost segregation firms? Or, any suggestions on specific companies to use?
Thank you!
The STR loophole can help you offset other active income. Even without that, it can help you offset capital gains from the sale of real estate or passive real estate income.What is the str "loophole" exactly? Is it because people that operate and manage their own str can hit the 100 hour participation rule?
To me, I don't see why anyone wouldn't do cost segregation even if it ends up being held as a carry forward loss. The reality is you're going to use it sooner than if you spread everything out over 27.5 years. And the sooner you can offset the income, the more value you get - period (because the money is always worth more today than it will be in the future). - 1ySean GrahamBusiness MemberInvestor , CPA · Detroit, MI · Member since 2016 · 582 posts · 248 votes
Quote from @Mike H.:
Quote from @Sean Graham:
Benefits of cost segregation really come down to personal tax positions… they can definitely help you lower taxable income but it’s situationally dependent.Quote from @Nicole Cotrino:
My spouse and I purchased a cabin in November 2023 as a STR and started renting it out in March of this year. I've been hearing a lot about cost segregation studies and have a few questions…
- What are some of the key factors that determine whether a cost segregation study makes sense? (I’m still trying to understand the basics!)
- We are going to start searching for a CPA with a lot of experience in STRs, but haven't found one yet. Would the best first step be to find a good STR CPA or to first focus on finding a good cost segregation firm?
- Will we substantially diminish the benefits of a cost segregation study if we don’t get it done before the end of the year?
- Any recommendations on how to vet CPAs and cost segregation firms? Or, any suggestions on specific companies to use?
Thank you!
The STR loophole can help you offset other active income. Even without that, it can help you offset capital gains from the sale of real estate or passive real estate income.What is the str "loophole" exactly? Is it because people that operate and manage their own str can hit the 100 hour participation rule?
To me, I don't see why anyone wouldn't do cost segregation even if it ends up being held as a carry forward loss. The reality is you're going to use it sooner than if you spread everything out over 27.5 years. And the sooner you can offset the income, the more value you get - period (because the money is always worth more today than it will be in the future).The IRS looks at real estate as a passive activity. Therefore, the depreciation is generally considered a passive loss which offsets passive income. The STR loophole allows you to treat the real estate as an active business which can therefore offset other active income (i.e. W2 income).
Yes, you need to materially participate in the STR in order to get the benefits of it offsetting other active income. The 100 hour rule is one of the material participation options.
Maven Cost Segregation Tax Advisors555 Reviews - 1yAshish AcharyaBusiness MemberCPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
@Nicole Cotrino When It Makes Sense: Best for properties over $200k, high rental income, high tax bracket, and a long-term hold. DIY Cost seg are better for smaller properties.
1. CPA or Cost Seg Firm First? Start with an STR-experienced CPA who can assess your tax situation and recommend a firm if needed. There are many rules you have to follow.
2. Timing: Complete the study within the property’s first tax year (by the extended tax fiing deadline) if possible; otherwise, a later study can use a catch-up adjustment but will be expensive.
3. How to Vet: Look for CPAs with STR expertise and cost seg firms certified by reputable bodies like BP, with positive reviews and case studies.
Start with a CPA to build a strong tax strategy for your STR.
This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.
INVESTOR FRIENDLY CPA®5241 Reviews - Toms River, NJ · Member since 2016 · 21 posts · 11 votes1y
Thank you! When you say DIY cost segregation - is that something where we still need to find a cost segregation firm, or is that something we would literally do ourselves? We purchased our property for $412k, are in a high W2 tax bracket, and intend to keep the house long term.
In terms of timing, we included expenses for the home in our 2023 taxes but hadn't started renting it yet. Would that mean we would have to use a catch-up adjustment? Or no, since we only started renting it out in 2024?
- Toms River, NJ · Member since 2016 · 21 posts · 11 votes1y
Also, can the 100 hours be combined between my spouse and myself? Or does it need to be individually by one of us?
- 1yJulio GonzalezPro MemberSpecialist · West Palm Beach, FL · Member since 2008 · 4k+ posts · 1k+ votes
Here's an article with additional FAQs on cost segregation studies that you may find helpful to better understand the basics. Feel free to reach out if you have any questions!
https://www.biggerpockets.com/forums/51/topics/1113749-cost-segregation-faq
- 1yMalik JavedBusiness MemberSpecialist · Los Angeles California · Member since 2024 · 90 posts · 38 votes
Quote from @Nicole Cotrino:
Thank you! When you say DIY cost segregation - is that something where we still need to find a cost segregation firm, or is that something we would literally do ourselves? We purchased our property for $412k, are in a high W2 tax bracket, and intend to keep the house long term.
In terms of timing, we included expenses for the home in our 2023 taxes but hadn't started renting it yet. Would that mean we would have to use a catch-up adjustment? Or no, since we only started renting it out in 2024?
Some companies also offer DIY cost segregation options, which can be much cheaper. Just be sure you fully understand the process to avoid any mistakes.
When picking a firm, make sure to go with a reputable one. A great place to start is www.ascsp.org, where you can find certified companies.
Also, check out the credentials of the person doing the study. Look for the Certified Cost Segregation Professional (CCSP) designation, which means they’re certified by the American Society of Cost Segregation Professionals. You’d want someone as trustworthy as a CPA for your taxes!
https://www.biggerpockets.com/forums/51/topics/1206189-cost-...
Feel free to reach out if you have any questions!
- 7moCorby GoadeBusiness MemberInvestor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
Oh man, I love this question, thank you for asking!
There's so little understanding about how cost segs work, and I've spoken to many a CPA who really don't understand them either. You need to find a pro who really understands your strategy and long term goals.
The number one thing you need to know before you head down this road is that unless you have substantial income AND you can use the cost seg to lessen your tax burden, then it doesn't matter. It's not as if the IRS just cuts you a check, you need the have a big tax bill to support it. It's savings, not income.
There are many factors that come in to play, but if you just have this one rental, W2 jobs and make $100K, it's probably not worth the time and effort- you'll get the same tax benefits stretched out over time any how.
If you are making $300K at your day job, you might explore this further.
If you are already a real estate professional AND you make decent income- you might dig in a bit more.
Best of luck!
- Investor · Hinton, WV · Member since 2026 · 15 posts · 9 votes7mo
My solid take on this is to be careful with DIY cost set studies, such has a lot risk than possible success actually. In my case, I use consistent reporting to manage my growing portfolio. I've had the Cost Seg guys do studies on my last three properties to keep everything uniform, which my CPA said makes our annual filings much more efficient.
- Lender · Tampa/Saint Petersburg, FL · Member since 2014 · 356 posts · 148 votes7mo
Hi Nicole, I'm originally from Bayville.
@Ashish Acharya nailed it in his response. I've connected with many CPA's and not all are made equal and understand cost seg and when to do it versus when not to, etc. There are many things to consider when deciding and it's important to work with someone who understand the process and can education and guide you. - Member since 2025 · 1 post · 2 votes7mo
This post is a great read, I am also looking into this but I keep find contradicting information. I spoke to a tax professional friend of the family and she mentioned if your income is over $150k yearly on your W2 that the this whole STR loophole wont be deduct able against my personal W2. She sent me some information:
"However, if you “actively participate” in the residential rental activity, you may be able to deduct a loss of up to $25,000 in a tax year against nonpassive income. You actively participate in the rental activity if you make important management decisions, such as approving new tenants, deciding on rental terms, approving capital expenditures. You also can show active participation by arranging for others to provide services. You need not have regular, continuous, and substantial involvement with the property. Between $1000,000 and $150,000 of adjusted grow income, the allowance phases out, meaning you can deduct a reduced amount. Over $150,000, the deduction is completely eliminated, unless you qualify as a real estate professional."I am planning on meeting with a local CPA to discuss so help me understand this better. The main benefit for purchasing a STR would be the tax savings on my W2 after a cost seg. If this is not possible I will stick with a long term rental as my next investment.
- Investor · Hinton, WV · Member since 2026 · 15 posts · 9 votes6mo
For a cabin STR purchased in late 2023 and placed in service this year, whether a cost segregation study makes sense really comes down to your building basis and whether you can actually use the accelerated depreciation. As a rough example, if you purchased for $600K and about $150K is land, that leaves roughly $450K depreciable; an engineered study might reclassify 15–30% of that into shorter-life assets, which could mean $70K–$130K of accelerated depreciation. The real question is whether you materially participate and can use those losses this year, because if they're limited, they typically carry forward rather than disappear. I would personally find an STR-experienced CPA first so you understand how the losses will be treated in your specific situation, then engage a cost seg firm once the CPA confirms the strategy works for your income profile. And if you don't complete the study by year-end, you generally can still do it later and catch up the depreciation through an accounting method change, so timing is important but not necessarily an all-or-nothing deadline.
- Real Estate Investor · Austin, TX · Member since 2017 · 69 posts · 16 votes6mo
@Nicole Cotrino — to add to the great answers here, let me tackle your questions directly:
CPA first or cost seg firm first? CPA first, full stop. The cost seg study is only valuable if your tax situation lets you use the losses. An STR CPA will tell you whether you're going to hit the material participation threshold and whether the depreciation will actually offset income this year. There's no point spending on a study before you know that.
Does timing matter? Yes, but it’s not as binary as people think. You ideally want the study done for the tax year the property was placed in service. Since you started renting in 2024, you’d want it done for 2024. If you miss the deadline, you can still do a catch-up via a 481(a) accounting method change, but that costs more and is more complex. Don’t panic — but don’t wait years either.
On your $412k cabin: With a property that size in a high tax bracket and a long-term hold, this is exactly the profile where cost seg makes a lot of sense. A traditional engineered study runs $2k–$5k for this price range. There are also newer lower-cost options like room42.io (~$525) that are built for residential investors — worth comparing.
The 100-hour question: It’s per individual, not combined. Each person claiming material participation needs to individually satisfy one of the tests. Your CPA can walk you through which test works best for your situation.
Good luck — this is a solid strategy when set up properly.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.