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
2w

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
    2w

    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
    2w

    @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 · 115 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 · 10 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
    1w

    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]
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  • Diana KhanPro Member
    Attorney · 10451 Mill Run Cir #755 Owings Mills, MD 21117 · Member since 2024 · 672 posts · 238 votes
    1w
    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
    1w

    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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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · Sarasota, FL · Member since 2017 · 5k+ posts · 3k+ votes
    4d

    Antony, you may not actually need to have a guest stay booked by January 1 for the property to be considered placed in service.

    The IRS generally looks at whether the property is ready and available for its specific rental use, not whether a guest has physically stayed there yet. There are IRS examples where a rental was considered placed in service when it was ready and available for rent even though the first tenant didn't arrive until later.

    So if your renovation is complete, the property is furnished and operational, you have the required STR license/authorization, and you actually make it available for rent before year-end, the lack of a December booking by itself doesn't necessarily prevent it from being placed in service.

    I'd make sure you keep documentation showing when the renovation was completed, when the property became rent-ready, when the STR authorization was obtained, and when you actually made the property available to guests.

    One other thing I'd separate from the placed-in-service question is whether the cost-seg depreciation can actually offset your W-2 income this year. For an STR, the average guest stay and your material participation can matter significantly. An STR with an average customer use of 7 days or less can fall outside the normal rental-activity definition, but you still need to analyze the material-participation rules.

    So I wouldn't focus only on getting a booking before year-end. I'd focus on making sure the property is genuinely ready, available, properly licensed, and supported by good records before December 31, and have the CPA confirm the passive-activity treatment before relying on the depreciation to offset W-2 income.

    Your daily hour log is also a good habit. I'd have the CPA review it before year-end rather than waiting until tax filing season to find out whether the participation supports the position. Feel free to DM me, I’d be happy to send over a few resources that might be helpful.

    [email protected]941-914-7779
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  • Sean GrahamBusiness Member
    Investor , CPA · Detroit, MI · Member since 2016 · 587 posts · 249 votes
    3d

    Hi @Antony Yuhasz , owner of Maven Cost Segregation here. You don't actually need a guest stay to be "placed in service." Once the reno is done, licensing clears, and your listing is officially live, you're good for cost seg depreciation.

    Just heads up on the W-2 tax offset: all those reno hours you logged don't count toward the 100-hour material participation test (they get added to property basis instead). You’ll need 100+ hours in actual operational management after going live, or those tax losses will just sit passive this year!

    Maven Cost Segregation Tax Advisors553 Reviews
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  • Matthew Dowg
    Member since 2026 · 4 posts · 0 votes
    3d

    I’m curious about your daily journal. Are you tracking everything in a spreadsheet, or using another system? I’ve found recording the work is fairly straightforward, but keeping photos, receipts, and supporting documentation connected to those entries takes more effort.

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