Real Estate Consultant · Ann Arbor, MI · Member since 2022 · 463 posts · 253 votes
1w
Hi Eric-
You asked about the Rent to Retire program for buying short-term rentals and doing cost segregations.
While I am not familiar with the Rent to Retire program, I know Semi-Retired MD does a comprehensive program on this and you don't have to be a physician to go through their program and be a part of their community. I believe they are starting a new class right about this time of year so you might want to look into it.
Thanks Jeff. I learned a bit about the concept of cost segregation and bonus depreciation. Great for year 1, not so much tax help in tax year 2 and beyond. Thanks.
Specialist · Tampa FL · Member since 2026 · 20 posts · 10 votes
1w
you've got the core idea right: cost seg is mostly about timing. It pulls depreciation forward rather than creating new deductions. A few things are worth knowing before you write off years 2+ though:
You still depreciate the remaining building portion every year after year one. It's just a smaller number.
If the year-one loss is bigger than what you can use that year, the unused amount generally carries forward rather than disappearing.
For the STR strategy specifically, the losses are only non-passive in years when the average guest stay is 7 days or less and you materially participate. If either changes, the treatment changes too.
When you sell, depreciation you took can be recaptured, so it's worth planning the exit alongside the purchase.
I work in cost segregation. My best advice is to ask your CPA for a simple multi-year projection (with and without a study) before you buy. It makes the year 1 vs. later years trade-off much clearer.
Eric, you've got the core of it: cost seg changes timing, not total depreciation. A few points that tend to get left out of the ads:
- Why it works at all: the Tax Court's Hospital Corp. of America decision (109 T.C. 21, 1997) is the foundation for separating qualifying personal-property components from the building. The IRS's own Cost Segregation Audit Techniques Guide (Pub. 5653) lays out what a credible, engineering-based study looks like.
- Bonus depreciation (§168(k)) can front-load those shorter-life components. The rate depends on when the property was acquired and placed in service.
- The STR piece: losses are only non-passive when the activity isn't treated as a "rental activity." One common route is an average guest stay of 7 days or less (Treas. Reg. §1.469-1T(e)(3)(ii)(A)), plus material participation.
- The exit: depreciation on personal-property components is generally recaptured as ordinary income under §1245 when you sell.
Before buying, ask for a multi-year projection that includes the sale year, not just year one. General info, not advice for your situation.
— Jake Latimer, Blueprint Advisors, The Woodlands/Houston