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Cost segregation calculator for short-term rentals

Start with the two tests that decide whether a loss from the rental is passive. Then enter the purchase and what your study moved to shorter lives.

Add the days of every stay that ends this year, then divide by the number of stays.

Significant personal services with each stay?

This only matters between 8 and 30 days. Services a long-term landlord also provides, such as routine repairs or trash collection, don't count.

They count as yours, even on separate returns.

Usually the cleaner or a co-host. Enter 0 if nobody else works on the rental.

First-year rates come from IRS Pub. 946: Table A-6 for 27.5 years, A-7a for 39 years. Other property uses the half-year table, A-1, or the mid-quarter table, A-5, when it goes into service from October to December. The calculator assumes a calendar tax year with nothing else placed in service.

This is not tax advice. The calculator leaves out the 40% election for 2025, state rules and the recapture that comes due when you sell. Run the final numbers with a CPA.

Step 1. Does your rental qualify?

Short-term rental loophole, on these numbers

Applies

Rental activity under the passive rules?No, 7 days or less
Material participationTest 3

More than 100 hours, and nobody else worked more.

If the rental is a trade or business, a loss from it isn't passive. The at-risk rules and the excess business loss limit can still cap it.

Step 2. First-year depreciation

First-year depreciation deduction, with the study

$108,637.00

Extra deduction in year one$97,121.00
Estimated federal effect at 32.0%$31,078.72

Only if the loss isn't passive and neither the at-risk rules nor the excess business loss limit caps it.

The short-term rental loophole, rule by rule

How it works

Why the passive rules come before the depreciation

1

Seven days, on average

An average stay of seven days or less takes the property out of the rental definition. Up to 30 days also works, with significant personal services.

2

Your hours against everyone else's

You need more than 500 hours. Or more than 100, as long as nobody else works more. Your spouse's hours count as yours.

3

Then the depreciation

Bonus depreciation only covers property with a life of 20 years or less. Your study decides how much of the building that is.

The deduction is half the question

A cost segregation study can bring tens of thousands of dollars of depreciation into the first year. Whether that deduction reaches your other income depends on the passive loss rules. The calculator runs those first.

Take the defaults: a $500,000 house with 20% land, placed in service in March 2026 under a 2026 contract. Without a study, the building gives $11,516 in year one. Move 15% of it to 5-year property and 10% to 15-year property. Year one then comes to $108,637. At a 32% bracket, the $97,121 difference has an estimated federal effect of about $31,100, if the loss isn't passive and nothing caps it.

The shares a study moves are inputs here, not assumptions. The IRS audit guide for these studies, Pub. 5653, tells examiners to treat rule-of-thumb percentages with caution.

Read nextShort-term rental tax loophole: what it is and who qualifiesThe seven-day test, the hour tests and the two limits that still cap a loss that isn't passive, each with its IRS source.Read the guide

Questions

Cost segregation on a short-term rental, answered

What is a cost segregation study?

A study that splits the cost of a building into components with shorter recovery periods. Appliances and carpeting become 5-year property. Fences and shrubbery become 15-year property. The IRS guide for examining these studies is the Cost Segregation Audit Techniques Guide, Pub. 5653.

When does a cost segregation study pay off on a short-term rental?

When the extra deduction reduces income you'd otherwise pay tax on. That takes a loss that isn't passive, or enough passive income to absorb it. Compare the study's fee with the estimated federal effect, then count the recapture when you sell.

Does bonus depreciation apply to a short-term rental?

To the shorter-lived property inside it, yes. The building never qualifies, because bonus depreciation only covers property with a recovery period of 20 years or less. The rate is 100% for property acquired after January 19, 2025.

Why does the calculator ask about my hours?

Because a passive loss can't offset your nonpassive income. Material participation is what keeps the loss from being passive, and the hour tests are the ones that fit a rental.

Is a short-term rental depreciated over 27.5 or 39 years?

Residential rental property uses 27.5 years. A unit in an establishment where more than half the units are used on a transient basis is excluded and can fall under the 39-year schedule. Pub. 527 doesn't say how short a stay has to be to count as transient, so the calculator runs both.

What happens to the deduction when I sell?

Part of it comes back. Gain on section 1245 property, which includes personal property such as appliances, is taxed as ordinary income up to the depreciation you took, according to Pub. 544.

What if I signed the purchase contract before January 20, 2025?

The old phase-down applies: 40% for property placed in service in 2025, 20% in 2026 and nothing after that. Pick that option above and the calculator switches rates.

Does the calculator include state taxes?

No. Not every state follows federal bonus depreciation. California has not conformed to it.

Sources

  • Treasury Regulations § 1.469-1T(e)(3), § 1.469-1(e)(3)(iii) and § 1.469-5T(a) and (f), eCFR, current as of September 30, 2026: rental activity exceptions, average period of customer use, material participation tests, spouse's hours.
  • IRS Publication 925 (2025), Passive Activity and At-Risk Rules: the $25,000 special allowance, the at-risk rules before the passive rules, the excess business loss limitation after them.
  • IRS Publication 946 (2025), Tables A-1, A-5, A-6 and A-7a: the first-year rates used by the calculator.
  • IRS Publication 527 (2025): 5-year and 15-year property in a residential rental, the 27.5-year recovery period, land not depreciable.
  • Public Law 119-21, § 70301 (July 4, 2025), and 26 U.S.C. § 168(k), 2024 edition: 100% for property acquired after January 19, 2025, the prior phase-down otherwise. IRS Notice 2026-11 (January 14, 2026).
  • IRS Publication 5653 (2-2025), Cost Segregation Audit Techniques Guide.
  • IRS Publication 544 (2025): gain on section 1245 property treated as ordinary income.
  • IRS news release IR-2025-103 (October 9, 2025): 2026 federal brackets of 10 to 37 percent.
  • California Franchise Tax Board, 2025 Instructions for Form FTB 3885A.
  • Model assumptions: calendar tax year, the reclassified property is the only personal property placed in service that year, no 40% election for 2025, no state tax, no recapture.

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