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 Ron’s STR in California, properties that are below that threshold can still unlock substantial benefits—especially with the return of 100% bonus depreciation under the Big, Beautiful Bill (BBB).
Case Study: Ron’s STR 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 Ron
Ron 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
Ron 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: Ron 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.
Ron’s case 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.
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Who Qualifies for 100% Bonus Depreciation in 2025?
To maximize the benefits:
- The property must be placed in service during the eligibility window (2025–2029).
- Short-life assets (5, 7, 15 years) must be identified through a cost segregation study.
- For short-term rentals to qualify as active rather than passive, you must satisfy the IRS material participation rules—generally by proving substantial personal involvement (e.g., 500+ hours per year, 100+ hours and more than anyone else, or doing nearly all the work yourself).
Final Thoughts
Ron’s California property proves that cost segregation is not just a strategy for high-value homes. Even below the $400K mark, when paired with improvements and furnishings, a study can reclassify enough assets to generate immediate and substantial tax savings. With the restoration of 100% bonus depreciation under the Big, Beautiful Bill, the potential benefits for STR investors are even greater in 2025 and beyond.
The real question isn’t whether your property crosses an arbitrary price threshold—it’s whether the mix of improvements, land enhancements, and personal property can justify a study. For many short-term rental owners, the answer is yes, and the payoff can be transformative for both cash flow and long-term returns.
In Ron’s case, cost segregation turned a $340,000 investment into $160,000+ of accelerated deductions and nearly $60,000 in Year 1 cash flow savings. With 100% bonus depreciation, those savings would have been even higher.
Connect with a Chalet specialist today to find out how much you can benefit from cost segregation and bonus depreciation for your STR.
