A cost segregation study was performed on a short-term rental property in Kissimmee, Florida, with a depreciable basis of $176,000. The two-story home was constructed in 2002 and acquired by the current owners in 2016.
The property features several amenities, including a swimming pool with a lanai enclosure. The interior features a modern kitchen, ceramic tile flooring and laminate wood floors. The exterior showcases a combination of CMU construction and stucco walls.
The objective of the cost segregation study was to reclassify eligible building components to optimize the owner’s tax savings.
Reallocating components into shorter depreciation categories can provide both short-term and long-term financial benefits.
For this property, 19.47% ($34,261.43) of the total depreciable basis was classified as 5-year class life. Assets in this category include:
- Kitchen appliances
- Laundry equipment (vent kits, washer, dryer)
- Electric components (TV connections, equipment panels)
- Window treatments
- Pool lanai enclosure
- Specialty lighting fixtures
Another 10.99% ($19,349.24) of the total depreciable basis was classified as a 15-year class life. Assets in this category include:
- Swimming pool
- Pool equipment
- Concrete pool deck
- Landscaping (sodding, underground sprinklers, planting beds)
- Concrete equipment pad
- Concrete paving
The remaining 69.54% ($122,389.33) of the total depreciable basis was classified as a 39-year class life. Assets in this category include:
- Structural components
- Building foundation
- Roof components
- Bathroom fixtures
- Plumbing systems
- HVAC central split system
- Flooring
- CMU walls
- Ceiling construction
- Doors
- General electrical components
This engineering-based cost segregation study used the following methodology:
- Physical site visit to identify and photograph property components
- Examination of architectural plans, accounting records and construction documents
- A cost analysis employing engineering principles to allocate costs to specific asset classifications
- Depreciation calculation using IRS-accepted methods, such as MACRS
The study also corrected a critical classification error, ensuring the property was treated as an STR with the appropriate 39-year class life and helping the owner remain compliant with IRS regulations.
Reminder: bonus depreciation started to phase out in 2023. It’s now at 40% in 2025, will drop to 20% in 2026 and completely phase out in 2027. However, there are tax code changes every year, so 100% depreciation may make a comeback.
For additional questions, check out this article on Cost Segregation FAQs.
Have you ever had a cost segregation study performed on an STR? What was your experience?
