How STR Investors Save $10K+ a Year with Bonus Depreciation & Cost Segs

Let’s be honest: nobody gets into short-term rentals (STRs) because they love tax code.
But stick with us — because understanding bonus depreciation and cost segregation could be the difference between writing a huge check to the IRS… or paying nothing at all.

We’ve seen STR investors offset $30K, $50K, even $100K+ of taxable income in a single year.
And yes, you can do it even if you don’t qualify as a real estate professional.

In this guide, we’re breaking down:

• What bonus depreciation and cost segregation are (in plain English)
• How STR investors use them to create massive paper losses
• Who qualifies (and how to make sure you do)
• How to apply this strategy for maximum return — legally and efficiently

Let’s get you saving.

💡 First: What Is Bonus Depreciation?

In the simplest terms, bonus depreciation lets you write off big parts of your property faster — instead of spreading it out over 27.5 years.

Normally, residential rental properties are depreciated evenly over time — about 3.6% per year.
But with bonus depreciation, you can deduct certain assets immediately in year one.

🧠 Example:
You buy a $600,000 STR. Without bonus depreciation, you write off ~$22,000/year.
With bonus depreciation and a cost seg? You might write off $80,000–$150,000 in year one.

That’s real money you get to keep, or use to offset other income.

🏗️ How Cost Segregation Works

A cost segregation study breaks your property into different components:

• 5-year: appliances, carpet, furniture
• 7-year: fences, outdoor decks, landscape lighting
• 15-year: driveways, sidewalks, land improvements
• 27.5-year: the building itself

When combined with bonus depreciation, all assets with a life under 20 years can be fully deducted in year one.

📊 Here’s a Typical Breakdown:

That’s $75,000 off your taxable income — in year one.

🔗 Read more: What’s changing with bonus depreciation in 2025?

📉 How STRs Qualify (Even If You’re Not a Real Estate Pro)

Here’s the magic of short-term rentals:

If your average guest stay is 7 days or less, and you materially participate in the business, the IRS often considers it an active trade or business — not a passive rental.

That means:

• You don’t need to qualify as a real estate professional (REPS)
• You can use those losses against W-2 or other active income
• You still get bonus depreciation without long-term lease rules

🔑 This is often called the STR Loophole (we’ll cover it in detail in Blog #3).

✅ Who Should Consider a Cost Seg + Bonus Depreciation?

You should consider this strategy if you:

• Bought or renovated an STR this tax year
• Expect to earn significant income from the property
• Also earn W-2 or business income you’d like to offset
• Materially participate (500+ hours/year or handle key tasks)

Common scenarios:

• High W-2 earners using STR to lower taxable income
• Spouses running STR while the other earns
• Investors flipping from long-term to short-term use
• Rehabbed STRs with new assets (furnishings, decking, HVAC)

💡 Pro tip: STR operators often get multiple years of savings by combining cost seg + REPS + capital improvements.

💰 How Much Does a Cost Segregation Study Cost?

Result: You pay $3K–$5K for the study… and potentially reduce taxes by $10K–$50K.

📢 Tip: The fee for the cost seg is also deductible.

📅 Time-Sensitive Tip: The Bonus Depreciation Phase-Out

As of 2025, bonus depreciation is being phased out:

What this means:
If you’re thinking about buying or furnishing an STR, doing it sooner unlocks more depreciation.

Waiting until 2027 could mean missing the boat — or needing a new strategy.

🧾 How to Execute the Strategy Step-by-Step

1. Buy and place STR in service (make it rent-ready) 
   • Must be available for bookings (even if no guests yet) 
2. Furnish and finalize capital improvements 
3. Hire a reputable cost segregation firm 
   • Ask your CPA for referrals or use STR-focused firms 
4. File IRS Form 4562 for depreciation 
   • Your CPA handles this in your tax return 
5. Track your STR hours + material participation 
   • Especially important to qualify for offsetting active income 

👀 A Real Deal Room Example

Property: 4BR pool home in St. Augustine

Purchase Price: $680,000

Land Value (from appraisal): $100,000

Depreciable Basis: $580,000

Cost Seg Breakdown (60% bonus in 2024):

• 5/15-year assets: $145,000
• Bonus depreciation: 60% of $145K = $87,000
• Tax savings (assuming 35% tax bracket): $30,450

Result: Investor wiped out all STR income + offset part of their spouse’s W-2 income.
Cost seg study cost = $4,200
ROI = 🔥

❓FAQs About STR Bonus Depreciation

“What if I don’t make enough to use all the losses?”

Losses roll forward to future years — or can be used to offset gains when you sell.

“Can I still do this if I used a loan?”

Yes. It’s based on the purchase price, not how you financed it.

“Does it work for rehabs?”

Absolutely. Renovations add to your basis. Just make sure you track costs and assets clearly.

“Do I need to file anything special?”

Yes — IRS Form 4562 + proper documentation from your cost seg provider. Work with a CPA who understands STR tax law.

🏁 Final Thoughts: Use the Tax Code to Your Advantage

If you’re not using bonus depreciation and cost segregation, you might be overpaying the IRS by five figures or more each year.

This isn’t a loophole — it’s how the tax code was written to reward business investment and hospitality property ownership.

The key is to:

• Set up your property and bookkeeping properly
• Work with the right cost seg provider
• Use a CPA who understands the STR landscape
• Act before bonus depreciation phases out

Want to Know If a Cost Seg Makes Sense for You?

We help STR investors:

• Run cost seg projections
• Connect with vetted firms
• Pair design and renovation with depreciation strategies

👉 Get the Bonus Depreciation Planning Guide
👉 Book a call with a Deal Room Tax Partner