Examples · made-up property
Cost segregation for a short-term rental
Owners of short-term and vacation rentals.
How it works for this kind of property
A furnished short-term rental has a lot of short-life property: furniture, appliances, fixtures and finishes, and outdoor items such as decks, hot tubs and landscaping. A cost segregation study separates those from the building.
More on how it works
Short-term rentals matter for the passive loss rules. When the average guest stay is 7 days or less, the property is not treated as a rental activity under those rules. If you also materially participate, the losses can offset other income. That depends on your hours and records, and your CPA makes the call.
Which of the 8 studies fit
| Study | Example result |
|---|---|
| Faster depreciation (cost segregation) | Counted in this example |
| Catch-up on past years | Fits, not counted here |
| Inventory cost rules and accounting methods | Fits, not counted here |
| When home-sale income is taxed | Doesn't apply here |
| Energy-efficient home and building credits | Doesn't apply here |
| Energy-efficient buildings and solar | Doesn't apply here |
| Research and hiring credits | Worth a question |
| Property and sales tax | Fits, not counted here |
What the engine found, for your CPA
Example: We checked 69 strategies: 11 fit, 4 need a question, 50 don't apply, and 4 are protection checks.
- Faster depreciation (cost segregation): 15-year site work (paving, lighting, fencing, landscaping); Bonus depreciation; Classification rules for this property type; Cost segregation on a building you bought
- Catch-up on past years: Accounting method changes (Form 3115)
- Inventory cost rules and accounting methods: Cash method for small businesses
- When home-sale income is taxed: No homes, condos or lots sold under contract.
- Energy-efficient home and building credits: Bought from someone else: 45L goes to the eligible contractor that built the home and had basis in it during construction (Notice 2023-65 sec. 5.02), not to a later buyer.
- Energy-efficient buildings and solar: No commercial or 4+ story multifamily building the taxpayer built or improved.
- Research and hiring credits: Question: Paid family leave credit (45S)
- Property and sales tax: Property tax appeal; Property tax review
Common questions
What is the short-term rental rule?
If the average guest stay is 7 days or less, the property is not a rental activity under the passive loss rules. If you materially participate, the losses are not passive. Keep a log of your hours; your CPA decides whether you qualify.
Is the furniture part of the study?
Furniture and appliances are 5-year property. The study lists them with the building's other short-life parts so your CPA has one schedule.
Does someone have to visit the property?
Nobody has to come out. You do a digital site visit yourself: film it in about 10 minutes with the Taxtura Site Visit iPhone app or your phone's browser. Our checks flag anything that needs a CPA on our team.
The rules behind it, for your CPA
- Pub. 946 (2025) Table B-1 asset class 00.3 Land Improvements
- 26 U.S.C. 168(b)(2)(A)
- Pub. 5653 Ch. 2 L(5)
- Notice 2026-11
- Treas. Reg. 1.168(k)-2(b)(3) original use / used property (5-calendar-year lookback)...
- Instructions for Form 4562 (2025)
- Rev. Proc. 2015-13 (as modified)
- Rev. Proc. 2025-23, as modified by Rev. Proc. 2025-28 and Rev. Proc. 2026-32
- Instructions for Form 3115 (Rev. December 2022)
- LB&I practice unit COR-C-011 (rev. 3/20/25)
- LB&I practice units 'Accounting Method Basics' and 'Identifying and Handling Claims...
- 26 USC 448
Every number on this page is an example for a made-up property, computed by our engine. Not tax advice; your CPA reviews and files.