VaultSTROur take
Cost segregation is the multiplier behind the STR tax loophole. Standard depreciation spreads a residential building over 27.5 years; a cost seg study identifies everything inside and around it that is not structural — appliances, flooring, furniture systems, decks, landscaping, driveways — and moves it to 5-, 7-, and 15-year schedules. Under current 100% bonus depreciation, those buckets deduct in year one.
On a typical $500K–$900K vacation rental, studies run $2,500–$5,500 and reclassify 20–35% of building basis. The return on that fee is usually excellent — for owners who can actually use the deductions. That last clause does the work.
How a study works
An engineering-based study (the kind that survives audits) documents the property component by component, assigns each to its asset class, and produces a report your CPA files with the return. Timeline is typically 4–8 weeks from engagement. Quality varies: an engineering firm with site documentation beats a $500 software-generated estimate, and the IRS knows the difference.
Studies can also be done retroactively for properties placed in service in prior years via a change in accounting method — catching up missed depreciation in the current year without amending returns.
What gets reclassified
5-year: appliances, furniture, carpet, window treatments, decorative fixtures — in a furnished STR this bucket is fat. 7-year: certain equipment and fixtures. 15-year: land improvements — decks, patios, fencing, driveways, landscaping, the hot tub pad. Mountain and lake properties with serious outdoor build-outs reclassify at the high end of the range.
Land itself never depreciates, which is why high-land-value markets (beach lots) sometimes disappoint on cost seg even when the purchase price is large.
The math on a real deal shape
Take a $700,000 cabin, $560,000 building basis after land allocation. A study reclassifies 28% — $156,800 — into short-life property, all bonus-eligible. Year-one depreciation: $156,800 plus regular depreciation on the remainder, call it $171,000 total. At a 35% marginal rate that defers roughly $60,000 of federal tax. Study cost: $4,000. That ratio is why the studies sell themselves.
The catch: the deduction only offsets active income if the owner clears the STR loophole’s two tests in the same year. Otherwise the loss sits passive and waits.
When to skip it
Skip or defer a study when the owner cannot materially participate this year; when the property is cheap enough that the study fee eats the benefit; when a sale within 2–3 years is likely (recapture on short-life property is taxed as ordinary income); or when the buyer’s income is modest enough that standard depreciation already covers it. A study is a tool, not a ritual.
What to tell your client
“Budget the study with your closing costs — around $3,000–$5,000 — and have the CPA model both scenarios before we close. On this property the furniture, deck, and land improvements are a meaningful share of value, which is exactly what a study monetizes. But the deal is underwritten to work with zero tax benefit; here is the pro forma.”
Bottom line
On a furnished STR with real outdoor improvements, cost segregation plus bonus depreciation is one of the highest-ROI moves in the buyer’s first year — conditional on qualifying to use the losses and holding long enough to beat recapture.
This article is research, not tax or legal advice. The rules described here have thresholds, exceptions, and documentation requirements that depend on individual facts. Involve a CPA who works with short-term rentals before acting on any of it.