How a Cost Segregation Study Can Maximize Your Short-Term Rental Profits

By: Elliott Caldwell | Jun 27, 2025

Why Consider a Cost Segregation Audit for Your Short-Term Rental?

As a short-term rental owner, you likely have a variety of assets that could be depreciated faster than the building structure itself. Traditional depreciation for a residential property is spread over 27.5 years. For commercial properties, it’s spread over 39 years. While this method works, it can take decades to realize the full tax benefits.

However, a cost segregation study allows you to identify specific components of your property—such as furniture, appliances, lighting, and landscaping—that can be depreciated over shorter periods, typically 5, 7, or 15 years. This method accelerates your depreciation deductions, allowing you to enjoy the tax savings in the early years of property ownership.



The result? Immediate tax savings that can range from $40,000 to over $100,000 per property in the first year alone, putting cash back in your pocket for reinvestment or other business expenses.

How Does a Cost Segregation Study Work?

A cost segregation study involves a detailed analysis of your property’s components, performed by a team of tax advisors and engineers. Here's how the process works:

• Initial Assessment: The property’s acquisition documents, cost details, and available blueprints are reviewed to assess the full scope of the property.
  
• On-Site Inspection: A team of experts conducts a physical inspection of the property to identify assets eligible for accelerated depreciation. These might include landscaping, HVAC systems, appliances, and furniture.
  
• Reclassification of Assets: After identifying these components, the study reclassifies them into depreciation categories of 5, 7, or 15 years (instead of the standard 27.5 or 39 years for the building itself).
  
• Report Generation: A comprehensive report is created, outlining the findings and providing a depreciation schedule for each reclassified asset.
  
  

By completing the cost segregation study, you can start taking advantage of accelerated depreciation deductions immediately, reducing your tax liability and boosting your cash flow.

What Are the Benefits of a Cost Segregation Study?

Conducting a cost segregation study offers several key benefits for short-term rental owners looking to maximize profits:

1. Immediate Tax Savings

The most significant benefit of this Airbnb tax loophole is the immediate tax savings it provides—often totaling tens of thousands of dollars in year one alone. Rather than waiting decades to claim your full depreciation, you can enjoy larger depreciation deductions in the first few years. These tax savings can range from $40,000 to over $100,000 in the first year alone, depending on your property value and the study’s findings.

2. Increased Cash Flow

By reducing your tax burden, you free up cash that can be reinvested into your short-term rental property. Whether you use the savings for property upgrades, marketing, or buying additional properties, the increased cash flow gives you the flexibility to grow your business faster and more efficiently.

3. Maximized ROI

Accelerating depreciation doesn’t just help with taxes—it helps maximize your return on investment (ROI). By reclaiming your investment faster, you can reinvest the savings into improving the property, which can lead to higher rental rates, increased occupancy, and overall improved profitability.

4. Bonus Depreciation Benefits

For properties purchased in 2024, you can take advantage of bonus depreciation, allowing you to depreciate 60% of eligible assets in the first year. In 2025, this percentage drops to 40%. Incorporating bonus depreciation into your cost segregation study can provide a significant boost to your first-year tax savings.

5. Long-Term Investment Strategy and Asset Reclassification

In addition to immediate tax savings and increased cash flow, cost segregation allows you to set up a long-term strategy for your property’s financial success. By strategically reclassifying assets, such as furniture, appliances, and land improvements, you create a more flexible financial situation, helping you adapt to market changes and reinvest in upgrades that ensure your short-term rental property stays competitive.

Moreover, once the study is performed, the reclassification of assets provides better segregation analysis, enabling you to manage your assets in a way that maximizes their potential over the years. This can lead to sustained profitability as segregation savings continue to benefit your investment property in the long term.

How Can a Cost Segregation Study Impact Your Tax Filing?

Once your cost segregation study is completed, you won’t need to submit the study itself with your tax return. However, the results of the study will be essential for updating your depreciation schedules.

The study provides detailed information on each reclassified asset and its depreciation timeline. Your CPA will use this data to accurately report your depreciation deductions on your tax return.

Even if you’ve already filed taxes for the current year, you can still benefit from a look-back study, which allows you to claim missed deductions without needing to amend previous tax filings.

Can You Benefit from a Cost Segregation Study?

You might be wondering, “Can I take advantage of a cost segregation study for my short-term rental property?” The answer is yes! Whether you're a first-time investor or an experienced property owner, you can benefit from accelerated depreciation deductions.

Here are a few examples of who can benefit from cost segregation:

• W-2 Job Holders: You don’t need to be a full-time real estate professional to benefit from cost segregation. If you own rental properties, you can still claim the tax savings.
  
• Recently Purchased Property: Even if you’ve owned the property for a year or more, you can still complete a cost segregation audit and claim the tax savings in the current year.
• Multiple Properties: If you own several short-term rental properties, the total tax savings from cost segregation can be significant.

Get Started with Cost Segregation Studies Today

Now that you understand the benefits of cost segregation, it’s time to take action. Legacy Wealth Tax Advisory & Accounting, our sister company, specializes in helping short-term rental investors unlock powerful tax savings by accelerating depreciation on their properties.

Their team of tax and real estate experts will guide you through the cost segregation process, ensuring you get the maximum benefits from your investment while staying fully compliant with IRS regulations. Whether you're a first-time investor or a seasoned pro, Legacy Wealth makes the entire process easy and hassle-free, providing you with the tools and knowledge you need to maximize cash flow, legally reduce taxes, and boost your ROI.

To get started, schedule a free consultation with Legacy Wealth today. Don’t leave money on the table—let them help you unlock the full potential of your short-term rental investment!