The STR angle
When average guest stays are 7 days or less and you materially participate, a short-term rental can be treated as non-passive. That means bonus-accelerated depreciation may offset active income, not just passive income.
Cost segregation supercharges it
A cost segregation study front-loads depreciation via bonus depreciation, creating a large first-year deduction — potentially a paper loss that shelters other income.
Get the details right
Material participation and the 7-day rule are strict, and the strategy interacts with recapture at sale. Model it and confirm with a professional before relying on it.
Frequently asked questions
What is the short-term rental loophole?
When average stays are 7 days or less and you materially participate, STR losses can be non-passive and offset active income — often paired with cost segregation.
Does cost segregation help short-term rentals?
Yes — it front-loads depreciation into a large first-year deduction.
Sources
- IRS Publication 946 — How to Depreciate Property
- IRS — Cost Segregation Audit Techniques Guide
- IRS Publication 527 — Residential Rental Property
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.