When evaluating whether cost segregation and bonus depreciation make sense for a short-term rental (STR), property value plays a critical role. Many investors wonder: Is it worth it if my property is valued below $400,000?
The reality is that lower-cost properties can yield substantial bonus depreciation benefits if a cost segregation study reveals enough eligible property. Cost segregation studies can unlock accelerated depreciation even in lower-cost properties, depending on the value of eligible components—not solely on the total property price.
As you’ll see from this STR in California, properties that are below that threshold can still unlock substantial benefits—especially with the return of 100% bonus depreciation under Trump’s Big, Beautiful Bill (BBB).
Case Study: Airbnb in California
- Purchase Price: $340,000
- Post-Acquisition Improvements: $196,189
- Purchase Year: 2023
- Depreciation Before Cost Seg: $509
- Depreciation After Cost Seg: $160,696
- Increased Tax Depreciation (Year 1): $160,187
- Increased Cash Flow (Year 1): $59,269
Before Cost Segregation Allocation
- Real Property: $476,189
- Land: $60,000
- Depreciable Basis: $476,189
After Cost Segregation Allocation
- Real Property: $280,172
- Land Improvements: $135,525
- Personal Property: $60,493
- Depreciable Basis: $476,189
- Land: $60,000
What This Means for the Investor
The investor was able to accelerate over $196,000 of assets into shorter depreciation categories. Instead of waiting 27.5 years, he deducted $160,187 immediately in Year 1, resulting in nearly $60,000 in additional cash flow.
2023 vs 2025: The Power of 100% Bonus Depreciation
The investor purchased his property in 2023, when bonus depreciation had stepped down to 80%. If he had purchased in 2025, under the BBB’s restored 100% bonus depreciation, the outcome would have been even greater.
| Metric | 2023 (80% Bonus Depreciation) | 2025 (100% Bonus Depreciation) | Difference |
| Accelerated Assets (Land Improvements + Personal Property) | $196,018 | $196,018 | – |
| Bonus Depreciation Taken | $156,814 | $196,018 | +$39,204 |
| Year 1 Increased Tax Depreciation | $160,187 | $199,391 | +$39,204 |
| Year 1 Increased Cash Flow (est. 37% tax bracket) | $59,269 | $73,775 | +$14,506 |
Key takeaway: The investor still saw a strong benefit in 2023, but with 100% bonus depreciation in 2025, his first-year cash flow boost would have been $14,500 higher.
Why the $400K Threshold Does Not Matter
While some investors assume that only higher-value properties justify a cost segregation study, the reality is more flexible. Even lower priced properties can unlock meaningful tax savings when you factor in reclassifiable assets like furnishings, appliances, and land improvements.
Cost segregation doesn’t have a hard cutoff where properties “struggle” under $400K. The reality is more nuanced:
- The value of bonus-eligible assets (like land improvements and personal property) matters more than the purchase price alone.
- Renovations, furnishing, and property type can make even sub-$400K STRs generate strong benefits.
- The study cost vs. tax savings balance is what investors should consider, not just an arbitrary threshold.
This case study is a great example: at $340K plus nearly $200K in improvements, the study uncovered enough accelerated depreciation to produce substantial first-year tax savings – showing that value isn’t limited to only the highest-priced properties.
