Do you have to have a STR booking in order for it to be "in service" for a cost seg

Tax, SDIRAs & Cost Segregation
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Do you have to have a STR booking in order for it to be "in service" for a cost seg

Antony YuhaszPro Member
Member since 2025 · 3 posts · 1 vote

I've been doing a total gut renovation of my future short term rental for the last 10 months. I plan on finishing the reno the end of November. My wife and I make a good living with our W2 jobs and would like to offset our tax bill with a cost seg this year. I've kept a daily journal of all the hours I've worked and separated all the business LLC expenses in owning and renovating the property. My question is if I complete the reno and get a short term rental license from the town but am not able to have a guest stay by January 1st in the eyes of the IRS am I "in service" so I can claim the cost seg.

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Hubert Grzesiak
Developer · Austin, TX · Member since 2026 · 11 posts · 7 votes
1w

Being "in service" just means the reno is done, you have the license, and the listing is live accepting bookings. The problem for offsetting W-2 income is the 7-day average stay rule - if you have zero guests check out before Dec 31st, you don't have an average stay of 7 days or less, so most CPAs say you can't use the STR loophole for that year. Since you finish in late November, I'd list it immediately and drop the rate just enough to get one or two real bookings completed before New Year's.

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  • Hubert Grzesiak
    Developer · Austin, TX · Member since 2026 · 11 posts · 7 votes
    1w

    Being "in service" just means the reno is done, you have the license, and the listing is live accepting bookings. The problem for offsetting W-2 income is the 7-day average stay rule - if you have zero guests check out before Dec 31st, you don't have an average stay of 7 days or less, so most CPAs say you can't use the STR loophole for that year. Since you finish in late November, I'd list it immediately and drop the rate just enough to get one or two real bookings completed before New Year's.

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  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    1w

    @Antony Yuhasz

    Placing a property "in service" is a requirement for long-term properties. For STRs it is not enough, as @Hubert Grzesiak pointed out. You must establish an "average use period" before the end of the year which requires a minimum of two actual stays. And they must be full-price bookings, not your family or buddies at some nominal price.

    More here:
    https://www.biggerpockets.com/forums/51/topics/1271425-explained-starting-an-str-in-december-updated#post_7146811

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  • Sagiv O.
    Real Estate Investor · Austin, TX · Member since 2017 · 113 posts · 31 votes
    1w

    Michael's right on the bookings point. One thing to watch: even with a December placed-in-service date, the cost-seg loss only offsets your 2026 W-2 income if you materially participate in the STR this year — 100+ hours on this property, more than anyone else, for 2026. With ~5 weeks left in the year, that's roughly 20 hrs/week of qualifying time, and your cleaner/PM can't log more than you. People nail the in-service date and lose the deduction on the hours log.

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  • Roel Vicerra
    Real Estate Consultant · Houston, TX · Member since 2026 · 8 posts · 3 votes
    1w

    One thing nobody's mentioned is which year the big deduction lands in. Bonus hits the year the place is placed in service. If it goes live in December but you can't get a couple of real stays and your hours in before year end, the 2026 loss is passive. It doesn't vanish, it just sits suspended and won't touch W-2 income. If you bought after Jan 19, 2025, 100% bonus is permanent now, so waiting doesn't cost you the rate. A January in-service date is worth running past your CPA so year one is a full year of stays and hours. I'd also ask how they treat your reno hours, since time before the rental starts may not count.

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  • Aaron ZimmermanBusiness Member
    Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
    6d

    The property may be considered in service but the losses will you’d generate from a cost seg will be considered passive, meaning you can’t write off against active income, only passive income for 2026.

    [email protected]
    Brick House CPAs53 Reviews
    WebsiteView Page
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  • Diana KhanPro Member
    Attorney · 10451 Mill Run Cir #755 Owings Mills, MD 21117 · Member since 2024 · 634 posts · 222 votes
    6d
    Quote from @Antony Yuhasz:

    I've been doing a total gut renovation of my future short term rental for the last 10 months. I plan on finishing the reno the end of November. My wife and I make a good living with our W2 jobs and would like to offset our tax bill with a cost seg this year. I've kept a daily journal of all the hours I've worked and separated all the business LLC expenses in owning and renovating the property. My question is if I complete the reno and get a short term rental license from the town but am not able to have a guest stay by January 1st in the eyes of the IRS am I "in service" so I can claim the cost seg.

    @Antony Yuhasz, you don't necessarily need a completed booking for the property to be considered placed in service. Generally, it needs to be ready and available for rent. But whether the depreciation losses can offset your W-2 income is a separate tax question, so I'd have your CPA confirm that before relying on the deduction this year.

    I'm a real estate attorney and investor based in Maryland, and I work with property owners on contracts, rental matters, and real estate transactions. I always encourage property owners to make sure the property is legally ready to rent, including any required permits, inspections, and local approvals. Keeping those records organized can also help document when the property became available for guests.

    I appreciate you sharing this, @Antony Yuhasz. It's a good reminder that finishing a renovation and being ready to operate a rental aren't always the same thing. This relates to the real estate work I do, and I'd be happy to stay connected!

    [email protected]240-266-0291
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  • Antony YuhaszPro Member
    OP
    Member since 2025 · 3 posts · 1 vote
    5d

    Thanks everyone for the responses and clarifying this for me. It looks like I have some options to talk to my CPA about. Thanks again !

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