Boost STR Profits: Save Over $10K Annually with Bonus Depreciation and Cost Segregation

When it comes to real estate investing, one of the most powerful tools in your wealth-building toolbox is depreciation — and if you own short-term rentals, you can take it to the next level with bonus depreciation and cost segregation.

In this guide, we’ll break down how savvy STR investors legally save $10,000 or more per property, per year, by accelerating their depreciation deductions — and why the IRS lets you do it.

🧮 First: What Is Depreciation?

The IRS allows you to “depreciate” (i.e., write off) the value of your property over time to account for wear and tear — even if your property is actually increasing in value.

For residential rental properties, that’s usually over 27.5 years.

Example:
A $400,000 property (excluding land) would be depreciated at ~$14,545 per year.

Not bad… but we can do way better.

⚡ Enter: Bonus Depreciation + Cost Segregation

Bonus Depreciation lets you write off certain assets (usually over 5, 7, or 15 years) immediately, instead of slowly over decades.

But to do this, you need a cost segregation study — a professional analysis that breaks your property into individual components: appliances, flooring, cabinets, landscaping, etc.

Then you can take those shorter-life assets and accelerate their depreciation.

💡 Big picture: Instead of writing off $14K/year, you could write off $100K+ in year one.

🧾 STR-Specific Advantage: The “Loophole”

Here’s the secret sauce: STRs don’t have to qualify as “rental properties” in the traditional tax sense.

If your average guest stay is less than 7 days, and you materially participate in the business, you can qualify your STR as a non-passive business — even if you have a W-2 job.

Why this matters:

• It means your losses (from depreciation) can offset your active income

• You don’t need Real Estate Professional Status (REPS) to benefit

• You can legally reduce your taxable income from your day job

🧠 Real Example: First-Year Write-Off

Scenario:

• Purchase Price: $500,000

• Land Value: $100,000

• Depreciable Amount: $400,000

• Cost Seg Study Result: $120,000 in assets eligible for bonus depreciation

You take the full $120K deduction in year one. If you earn $200K at your W-2 job, that $120K could reduce your taxable income to $80K — saving you $30K+ in federal taxes depending on your bracket.

⚠️ Important Rules

1. You must materially participate in the STR (more on this in Blog 2!)

2. You can’t depreciate land

3. Bonus depreciation is phasing out (was 100% in 2022, 80% in 2023, 60% in 2024…)

4. This is legal and widely used — but get a qualified CPA

💬 Final Thoughts

This is the closest thing to a “cheat code” in real estate investing. If you’re not using bonus depreciation with STRs, you’re likely leaving tens of thousands of dollars on the table.

Cost segs aren’t free — expect to pay $3,000–$5,000 — but the ROI is massive. Talk to a tax pro with STR experience, run the numbers, and reduce your taxable income the smart way.