Rehab and cost seg

Member since 2025 · 8 posts · 7 votes

If I buy a property now with the intention of using it as a self-managed STR, then rehab it and get a cost seg study done, will that cost seg reflect all the improvements I have made to the property since buying it? My thought is to add value to the property to try to increase how much I can claim for bonus depreciation. Thanks!

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Kate Stoermer

Real Estate Consultant · Ann Arbor, MI · Member since 2023 · 85 posts · 93 votes

10mo

The cost seg will reflect the building and improvements that exist at the time the study is done; you can do a study at any time during ownership, but only once.

Improvements to the building itself will increase your depreciation value regardless. You just need to keep good records so your CPA can correctly discern what improvements will impact the cost basis. "Adding value" for bonus depreciation is about investing in capital improvements with a <20 lifespan. Structural changes won't do that, but landscaping, concrete, even appliances and higher end furnishings will. Talk to your accountant about what you are planning to make sure things align with your goals. Its a great tool. And remember - all that depreciation gets recaptured at sale unless you role it into another investment.

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Kate Stoermer
Real Estate Consultant · Ann Arbor, MI · Member since 2023 · 85 posts · 93 votes
10mo
The cost seg will reflect the building and improvements that exist at the time the study is done; you can do a study at any time during ownership, but only once.
Improvements to the building itself will increase your depreciation value regardless. You just need to keep good records so your CPA can correctly discern what improvements will impact the cost basis. "Adding value" for bonus depreciation is about investing in capital improvements with a <20 lifespan. Structural changes won't do that, but landscaping, concrete, even appliances and higher end furnishings will. Talk to your accountant about what you are planning to make sure things align with your goals. Its a great tool. And remember - all that depreciation gets recaptured at sale unless you role it into another investment.
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Mike GrudzienPro Member
Lender · Eugene, OR · Member since 2019 · 2k+ posts · 1k+ votes
10mo
Kate nailed it. Good explanation!
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Andrew SteffensBusiness Member
Tampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
10mo
Kate gave a great explanation, but I want to highlight the importance of having a real estate savvy CPA for this very purpose. I've spoken to quite a few of my accountants CPA's and they often have variations in opinion on how they interpret certain things in the code. Make sure you have a CPA you trust and go with his guidance for this process. Good luck!
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Jake BakerBusiness Member
Flipper/Rehabber · San Diego, CA · Member since 2020 · 1k+ posts · 696 votes
10mo
@Laura Parra

@Kate Stoermer nailed it. To add one quick point:
Yes, if you rehab before the cost seg, those capital improvements will be included and increase your depreciable basis, meaning more can qualify for accelerated depreciation.

Just make sure you’re tracking all of your rehab expenses and keeping solid documentation. Your CPA and the cost seg team will need precise numbers to classify everything correctly. We use QuickBooks to track and manage our rehabs.

This “rehab first, cost seg second” approach is a common strategy to maximize bonus depreciation, especially for STRs if you materially participate.
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Fulton Abraham Sanchez
CPA| New Clients Welcome| 50 States · Member since 2016 · 440 posts · 94 votes
10mo
@Laura Parra, hi. Yes, if you do the cost seg after you complete the rehab, the study is typically done on the total depreciable basis at that point, so those upgrades can be included. Just keep in mind:
- You only get bonus on what you actually spent (you can’t “create” deductions beyond your cost).
- Land and non-depreciable items are still excluded.
- To use those STR losses against your W-2, you'll want to be sure you meet the material participation rules and that it's treated as a non-rental activity.
I’d definitely have your CPA coordinate on timing and tracking your rehab costs so you don’t leave anything on the table.
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Ashish AcharyaBusiness Member
CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
10mo
Hey @Laura Parra, as others mentioned above, yes, you can absolutely have a cost segregation study done after you complete your rehab, and it can include all the improvements you’ve made since purchase. It's a great way to save and set yourself up for reinvestment opportunities to really scale.

Keep detailed records of materials, labor, permits, and any other improvement-related expenses, because the IRS requires documentation to support the allocations. Many investors take a staged approach: track improvements separately during the rehab, then complete the cost segregation once the property is finished, so the study fully reflects all value you’ve added.

This strategy works well for STRs like the one you're planning to use, but you'll also want to make sure you meet the material participation rules if you plan to use the losses against W2 income. Make sure you communicate all your goals to your CPA, as this requires strategic planning. Happy to connect!
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