Does bonus depreciation only apply to short-term rentals, or can you also take advantage of it with medium-term rentals?

I would not rent out to friends or family that pay below fair market rate as this could also be considered a personal day which would negate any benefit of the short term rental loophole. 

I do qualify as a real estate professional, so I also thought about the cost seg and bonus deprecation. 

If you're truly using all your savings and a HELOC for this, I would be wary because there won't be anything for capitalized costs, repairs or a tenant that stops paying (especially costly in New York where eviction can take months).

Action StepsVerify with your appraiser or contractor if the “bonus room” meets bedroom code.Lock in solid leases at strong rents (on paper, not verbal) before your refinance appraisal.Gather student housing comps, even if they’re duplexes, the rental income comparison can help justify higher value on DSCR loans.Have a backup plan (cash flow paydown, bridge loan) if appraisal doesn’t hit as high as you need.✅ Bottom line: You didn’t make a bad move.

Before the Tax Cuts and Jobs Act the Bonus Depreciation was 50%.

Correct me if I'm wrong, but with the cost-segregation, I could essentially pay no taxes for our rental income for quite a few years.Example numbers:$2m property purchase$800k bonus depreciation$125k rental income annuallyNo taxes paid on rental income for the next 6.4 years or so. 

It allows you to take accelerated depreciation on portions of your property depending on when an asset is put into service.At the time of this writing, you can write off a huge portion (100% now in 2025) of many qualified components that have a useful lifespan of 15 years or less.That means a certain percentage of things like landscaping, sidewalks, latches, appliances, fences, certain flooring, etc is depreciable in year 1.The bonus depreciation rate percentage changes yearly depending on the administration and the tax code.For years 2015 through 2017 first-year depreciation for all the items on a 15-year schedule or less was set to 50%.It was scheduled to go down to 40% in 2018 and 30% in 2019 and then 0% in 2020.But then Trump got elected, and he enacted the Tax Cuts and Jobs Act.That moved the bonus depreciation percentage to 100% from 2017 to 2022.In 2024 it went down to 60%.

I'm wanting to use funds from a rental that I have payed off for another deal.

You’re thinking in the right direction — zero lot line / townhome-style developments can meet a real need in rural and secondary markets, especially where there’s demand for affordable, low-maintenance housing but no new supply.A few ways you might approach testing your vision:Market Feasibility Study: Talk with a local planning department or economic development office to get housing demand data (demographics, household income, and housing stock).