Tax advantages of owning a STR...
Member since 2026 · 9 posts · 5 votes
Tax advantages of owning a STR...
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Accountant · Long Island, NY · Member since 2021 · 184 posts · 148 votes
5mo@Louis Houette The building value of an STR is generally depreciated over 39 years (unlike the traditional 27.5 with LTRs).
If you get a cost segregation study done on the property, the assets will be split by 5/15/39 year assets, with the 5- and 15-year assets being eligible for bonus depreciation.
This is a heavily discussed topic, as a cost segregation is required in order to segregate the assets into the bonus depreciable classes and receive the tax benefits of bonus depreciation.
Feel free to reach out with any tax questions related to STRs
20 Replies
- Accountant · Long Island, NY · Member since 2021 · 184 posts · 148 votes5mo
@Louis Houette The building value of an STR is generally depreciated over 39 years (unlike the traditional 27.5 with LTRs).
If you get a cost segregation study done on the property, the assets will be split by 5/15/39 year assets, with the 5- and 15-year assets being eligible for bonus depreciation.
This is a heavily discussed topic, as a cost segregation is required in order to segregate the assets into the bonus depreciable classes and receive the tax benefits of bonus depreciation.
Feel free to reach out with any tax questions related to STRs
- Member since 2026 · 9 posts · 5 votes5mo
Good catch, that was a typo on my part. You're right, 39 years applies where the average rental period is 7 days or fewer. Important distinction.
The broader point still stands though. Whether 27.5 or 39, most owners are not breaking the property down further than the building line, which is where the real opportunity sits with the 5 and 15 year components you mentioned.
Are you finding that your STR clients are generally aware of this or is it still something that needs explaining from scratch most of the time?
- Accountant · Long Island, NY · Member since 2021 · 184 posts · 148 votes5mo
Quote from @Louis Houette:
Good catch, that was a typo on my part. You're right, 39 years applies where the average rental period is 7 days or fewer. Important distinction.
The broader point still stands though. Whether 27.5 or 39, most owners are not breaking the property down further than the building line, which is where the real opportunity sits with the 5 and 15 year components you mentioned.
Are you finding that your STR clients are generally aware of this or is it still something that needs explaining from scratch most of the time?
@Louis Houette I would say most clients that are getting into STRs are chasing the tax savings. So yes, they are aware of the bonus depreciable asset classes and the benefit of segregating.
If they aren't aware, we sure make them aware, haha.
- Attorney · Spanish Fork, UT · Member since 2025 · 77 posts · 98 votes5mo
While many casual owners might just stick to the standard 39-year depreciation schedule, there is a large community of savvy investors who are specifically targeting Short-Term Rentals (STRs) primarily for the Cost Segregation and Bonus Depreciation benefits.
I personally work with a lot of high-income professionals—dentists, doctors, attorneys, and execs—using this exact strategy to mitigate their active income tax. For those working full-time without a spouse who can qualify as a Real Estate Professional (REPS), the "STR Loophole" is often the most viable path to significant tax savings.
The "Magic" of the STR Strategy:
- Passive vs. Active: Normally, depreciation on a rental (Long-Term) creates a passive loss, which can only offset other passive income.
- The Material Participation Pivot: If you average 7 days or less per guest stay and meet specific material participation requirements—typically 100 hours during the year and more than anyone else—those losses can be treated as active.
- W-2 Offset: By using a Cost Segregation study to front-load depreciation into Year 1, you can generate a massive active loss to offset W-2 income or other types of non-passive income.
Whether or not the "STR Loophole" or active income mitigation is a specific priority for your own portfolio, it's definitely the driving force behind why so many investors are pivoting to this asset class right now. Even if you aren't looking to offset W-2 income specifically, I'm seeing a significant number of people entering the STR space or performing these cost seg studies solely to harvest those active losses. It has moved from a niche accounting trick to a primary investment thesis for a lot of high earners.
- Member since 2026 · 9 posts · 5 votes5mo
Quote from @Ryan Coon:
While many casual owners might just stick to the standard 39-year depreciation schedule, there is a large community of savvy investors who are specifically targeting Short-Term Rentals (STRs) primarily for the Cost Segregation and Bonus Depreciation benefits.
I personally work with a lot of high-income professionals—dentists, doctors, attorneys, and execs—using this exact strategy to mitigate their active income tax. For those working full-time without a spouse who can qualify as a Real Estate Professional (REPS), the "STR Loophole" is often the most viable path to significant tax savings.
The "Magic" of the STR Strategy:
- Passive vs. Active: Normally, depreciation on a rental (Long-Term) creates a passive loss, which can only offset other passive income.
- The Material Participation Pivot: If you average 7 days or less per guest stay and meet specific material participation requirements—typically 100 hours during the year and more than anyone else—those losses can be treated as active.
- W-2 Offset: By using a Cost Segregation study to front-load depreciation into Year 1, you can generate a massive active loss to offset W-2 income or other types of non-passive income.
Whether or not the "STR Loophole" or active income mitigation is a specific priority for your own portfolio, it's definitely the driving force behind why so many investors are pivoting to this asset class right now. Even if you aren't looking to offset W-2 income specifically, I'm seeing a significant number of people entering the STR space or performing these cost seg studies solely to harvest those active losses. It has moved from a niche accounting trick to a primary investment thesis for a lot of high earners.
Thank you for the breakdown Ryan.So what does your role as an attorney typically look like with these clients? Where do you tend to add the most value once they have committed to the strategy?
- Attorney · Spanish Fork, UT · Member since 2025 · 77 posts · 98 votes5mo
Quote from @Louis Houette:
Quote from @Ryan Coon:
While many casual owners might just stick to the standard 39-year depreciation schedule, there is a large community of savvy investors who are specifically targeting Short-Term Rentals (STRs) primarily for the Cost Segregation and Bonus Depreciation benefits.
I personally work with a lot of high-income professionals—dentists, doctors, attorneys, and execs—using this exact strategy to mitigate their active income tax. For those working full-time without a spouse who can qualify as a Real Estate Professional (REPS), the "STR Loophole" is often the most viable path to significant tax savings.
The "Magic" of the STR Strategy:
- Passive vs. Active: Normally, depreciation on a rental (Long-Term) creates a passive loss, which can only offset other passive income.
- The Material Participation Pivot: If you average 7 days or less per guest stay and meet specific material participation requirements—typically 100 hours during the year and more than anyone else—those losses can be treated as active.
- W-2 Offset: By using a Cost Segregation study to front-load depreciation into Year 1, you can generate a massive active loss to offset W-2 income or other types of non-passive income.
Whether or not the "STR Loophole" or active income mitigation is a specific priority for your own portfolio, it's definitely the driving force behind why so many investors are pivoting to this asset class right now. Even if you aren't looking to offset W-2 income specifically, I'm seeing a significant number of people entering the STR space or performing these cost seg studies solely to harvest those active losses. It has moved from a niche accounting trick to a primary investment thesis for a lot of high earners.
Thank you for the breakdown Ryan.So what does your role as an attorney typically look like with these clients? Where do you tend to add the most value once they have committed to the strategy?
Thanks for the follow-up! It’s a great question, as the legal and tax sides of this strategy are really two sides of the same coin.
My role as an attorney in these scenarios is primarily focused on strategic asset protection and tax planning. While the "STR Loophole" is a powerful tax play, it needs to be built on a rock-solid legal foundation to be sustainable.
Here is how I typically add value for clients, whether or not they are looking at the STR Loophole Strategy:
- Entity Structuring: We design and implement specific business structures or entities tailored to the client's portfolio. The goal here is twofold: to maximize the potential for tax savings and to provide a robust shield against liability exposure.
- Risk Mitigation: Short-term rentals naturally come with higher "foot traffic" and different risks than long-term holds. I focus on identifying legal strategies that mitigate that risk and protect the client's other assets (like their W-2 income or primary residence) from potential litigation.
- Strategic Oversight: While we have a full team of tax preparers and advisors who handle the granular logistics and filings of these strategies, my focus remains on the high-level strategy—ensuring that the tax-saving methods we identify are legally sound and integrated into a broader plan for wealth protection.
- 5moJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
It does pull in tomorrow's tax savings to today.
This can be useful if you can invest those savings today to make more money.
- 5moCollin HaysBusiness MemberProperty Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
Quote from @Louis Houette:
Most STR owners I speak to depreciate their property over 27.5 years and leave it at that. Curious how many people here have actually broken down the components of their property and accelerated anything?
Is this something your CPA has raised with you or is it rarely discussed?
I'm in that boat. But if I was buying now, I would definitely do a cost segregation study and take advantage of the rapid depreciation currently allowed.
Of course, this is all just tax deferment. If you buy a $500K house and depreciate say $200K in year one, yes, you've saved on this year's taxes, but you have also created for yourself a huge tax liability when you sell, unless you kick the can down the road with a 1031 exchange.
- Accountant · Long Island, NY · Member since 2021 · 184 posts · 148 votes5mo
Quote from @Collin Hays:
Quote from @Louis Houette:
Most STR owners I speak to depreciate their property over 27.5 years and leave it at that. Curious how many people here have actually broken down the components of their property and accelerated anything?
Is this something your CPA has raised with you or is it rarely discussed?
I'm in that boat. But if I was buying now, I would definitely do a cost segregation study and take advantage of the rapid depreciation currently allowed.
Of course, this is all just tax deferment. If you buy a $500K house and depreciate say $200K in year one, yes, you've saved on this year's taxes, but you have also created for yourself a huge tax liability when you sell, unless you kick the can down the road with a 1031 exchange.
@Collin Hays is right, depreciation recapture is real. Which is why working with a tax advisor to strategically plan around recapture is extremely important. It can't be eliminated, but it can be offset through other strategic plays on the tax side.
- Member since 2026 · 9 posts · 5 votes5mo
Quote from @Collin Hays:
Quote from @Louis Houette:
Most STR owners I speak to depreciate their property over 27.5 years and leave it at that. Curious how many people here have actually broken down the components of their property and accelerated anything?
Is this something your CPA has raised with you or is it rarely discussed?
I'm in that boat. But if I was buying now, I would definitely do a cost segregation study and take advantage of the rapid depreciation currently allowed.
Of course, this is all just tax deferment. If you buy a $500K house and depreciate say $200K in year one, yes, you've saved on this year's taxes, but you have also created for yourself a huge tax liability when you sell, unless you kick the can down the road with a 1031 exchange.
Appreciate you sharing that Collin. What has stopped you from looking at it on the property you already own?
- 5moCollin HaysBusiness MemberProperty Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
Quote from @Louis Houette:
Quote from @Collin Hays:
Quote from @Louis Houette:
Most STR owners I speak to depreciate their property over 27.5 years and leave it at that. Curious how many people here have actually broken down the components of their property and accelerated anything?
Is this something your CPA has raised with you or is it rarely discussed?
I'm in that boat. But if I was buying now, I would definitely do a cost segregation study and take advantage of the rapid depreciation currently allowed.
Of course, this is all just tax deferment. If you buy a $500K house and depreciate say $200K in year one, yes, you've saved on this year's taxes, but you have also created for yourself a huge tax liability when you sell, unless you kick the can down the road with a 1031 exchange.
Appreciate you sharing that Collin. What has stopped you from looking at it on the property you already own?
I don't want my CPA to fire me. ;)
- Member since 2026 · 9 posts · 5 votes5mo
Quote from @Collin Hays:
Quote from @Louis Houette:
Quote from @Collin Hays:
Quote from @Louis Houette:
Most STR owners I speak to depreciate their property over 27.5 years and leave it at that. Curious how many people here have actually broken down the components of their property and accelerated anything?
Is this something your CPA has raised with you or is it rarely discussed?
I'm in that boat. But if I was buying now, I would definitely do a cost segregation study and take advantage of the rapid depreciation currently allowed.
Of course, this is all just tax deferment. If you buy a $500K house and depreciate say $200K in year one, yes, you've saved on this year's taxes, but you have also created for yourself a huge tax liability when you sell, unless you kick the can down the road with a 1031 exchange.
Appreciate you sharing that Collin. What has stopped you from looking at it on the property you already own?
I don't want my CPA to fire me. ;)
Haha fair enough. Some relationships are worth protecting huh
- 5moAaron ZimmermanBusiness MemberAccountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
STRs are depreciated over 39 years as others have said. To break the building down into its component pieces, I'd recommend getting a cost seg assuming you can utilize the losses against active income.
Brick House CPAs53 Reviews - 5moJason MalabuteBusiness MemberAccountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 903 votes
A few things worth flagging on the tax side. A cost segregation study can break the property into shorter-life classes like 5-year and 15-year property, and those buckets are generally eligible for bonus depreciation, which is where the front-loaded write-offs come from. The bigger appeal for STR owners specifically is the passive activity rule under Section 469: if your average guest stay is 7 days or less and you materially participate in the activity, the rental is not treated as a passive activity, so the losses can offset W-2 or other active income without needing real estate professional status. One thing to keep in mind on the back end is depreciation recapture when you sell, which is real but can often be planned around with a 1031 exchange. The exact play depends on your facts, so it's worth running through with your own CPA before relying on it.
Malabute & Company CPAs525 Reviews - 5moAndrew SteffensBusiness MemberTampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
And that is why I hired @Christopher Tile and his firm to do not only my personal but business returns as well!
Vacation Rentals of Florida53 Reviews - Contractor · Sheboygan, WI · Member since 2016 · 921 posts · 266 votes5mo
@Collin Hays don t forget there is no depreciation recapture on RE gifts given to charity. The gift is valued at full market value with no depreciation adjustment.
- 5moJose OrtizBusiness MemberAccountant · South Florida · Member since 2026 · 47 posts · 18 votes
Louis...
With my clients, we evaluate cost seg proactively instead of automatically defaulting to 27.5-year depreciation.
For STR owners especially, we're usually looking at whether certain components can be accelerated into 5, 7, or 15-year property to create larger upfront deductions and improve cash flow. We also look at material participation, hold period, income level, and whether the losses will actually be usable before recommending it.
A lot of investors are surprised this was never even brought up by prior CPAs.
The Scale Collective.56 Reviews - 4moJason MalabuteBusiness MemberAccountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 903 votesQuick clarification on the depreciation life — a true short-term rental where the average guest stay is 7 days or less is generally depreciated over 39 years rather than the 27.5 years used for long-term residential rentals. The bigger opportunity most STR owners miss is a cost segregation study, which breaks the property into 5-, 15-, and 39-year buckets, with the 5- and 15-year components typically eligible for bonus depreciation and a much larger deduction in the early years. The exact benefit depends on your facts, so it's worth running it past your own CPA before pulling the trigger.Malabute & Company CPAs525 Reviews
- 4moBasit SiddiqiBusiness MemberAccountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
If you can benefit by taking the extra depreciation = Do the Cost Segregation study.
If you can't benefit by taking the extra depreciation = do not do the cost segregation study.
You can normally run it by your accountant to see whether it will be beneficial or not.
Even if the property is not active, it may be better to do a cost segregation study because STR's, in nature generate more gross income than their LTR counterpart.
Best of luck!
Basit Siddiqi CPA4.979 Reviews
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