When it comes to short-term rental (STR) investing, few tax strategies are as powerful as cost segregation paired with bonus depreciation. With the return of 100% bonus depreciation under the Big, Beautiful Bill (BBB), many investors are asking: What is bonus depreciation? How does it work? And is it worth it for my STR?
Let’s explore these questions through the cost segregation case study of a $700,000 STR in Florida, purchased in 2023.
What Is Bonus Depreciation?
Bonus depreciation is a tax incentive that allows real estate investors to immediately deduct the cost of certain assets, rather than depreciating them over decades.
- Under the Tax Cuts and Jobs Act (TCJA) of 2017, bonus depreciation was increased to 100% for qualifying assets.
- It began phasing down in 2023: 80% in 2023, 60% in 2024, and 40% in 2025—until the BBB restored it back to 100% starting in 2025.
- Qualifying assets include components identified in a cost segregation study, such as appliances, flooring, cabinetry, and land improvements.
Case Study: Airbnb in Florida
Our investor purchased his $700,000 property in 2023. By completing a cost segregation study, he was able to reclassify portions of the property into shorter depreciation categories.
Breaking Down the Numbers
- Purchase Price: $700,000
- Purchase Year: 2023
- Depreciation Before Cost Seg: $3,328
- Depreciation After Cost Seg: $79,617
- Increased Tax Depreciation (Year 1): $76,289
- Increased Cash Flow (Year 1): $28,227
Before Cost Segregation Allocation
- Real Property: $283,191
- Land: $416,809
- Depreciable Basis: $283,191
After Cost Segregation Allocation
- Real Property: $189,403
- Land Improvements: $46,396
- Personal Property: $47,392
- Land: $416,809
- Depreciable Basis: $283,191
What This Means for the Investor
By accelerating nearly $94,000 into short-life assets, the investor was able to claim an additional $76,289 in depreciation during Year 1—boosting his cash flow by over $28,000.
