First year depreciation in STR

[Anna Thanopoulou]

Hi everyone. 

We purchased a property in early October and are placing it in service this week (mid November).

We had intended to run a cost segregation study and try to accelerate depreciation which we can deduct against our W2 (assuming material participation).

However, we have been reading through the IRS guidelines (eg publication 946 on Property Depreciation) and there seems to be the concept of "short year" which would mean that we can only deduct ~1.5/12 of a year's worth of depreciation in 2024.

Is this correct or are there any different rules for STRs specifically? We have been swept by the influencers touting the benefits of cost seg, so we are wondering how come nobody ever mentioned that it might not fully appy during the first year in service.

Many thanks in advance

[Michael Plaks]

Quote from @Anna Thanopoulou:

Hi everyone. 

We purchased a property in early October and are placing it in service this week (mid November).

We had intended to run a cost segregation study and try to accelerate depreciation which we can deduct against our W2 (assuming material participation).

However, we have been reading through the IRS guidelines (eg publication 946 on Property Depreciation) and there seems to be the concept of "short year" which would mean that we can only deduct ~1.5/12 of a year's worth of depreciation in 2024.

Is this correct or are there any different rules for STRs specifically? We have been swept by the influencers touting the benefits of cost seg, so we are wondering how come nobody ever mentioned that it might not fully appy during the first year in service.

You relied on two almost equally awful sources of information: influencers and IRS publications. Influencers are easy to understand but have no clue what they are talking about. The IRS is the other way around.

Your bonus depreciation, assuming you're eligible for it, is not pro-rated. Depreciation for what is left after bonus depreciation, the building itself, is indeed prorated, however it's a relatively minor factor compared to bonus.

And read this post please, since there could be other things not mentioned by influencers: 
https://www.biggerpockets.com/forums/51/topics/1122635-the-s...