How to Track Cost Segregation for Your Short-Term Rental

A cost segregation study splits your property's depreciable basis into faster-depreciating components — 5-year personal property, 7-year equipment, and 15-year land improvements — instead of leaving everything on the 39-year building schedule. With 100% bonus depreciation restored for property acquired after January 19, 2025, those short-life classes can be deducted in full in year one. Tracking it means recording each class's allocated basis and placed-in-service date, applying the right bonus rate, and keeping the study with your return.

This guide shows you how to enter your study results in DeductFlow, configure asset classes, apply bonus depreciation, and give your CPA exactly what they need to complete Form 4562.

MACRS Asset Classes: What Cost Seg Produces

A cost segregation study breaks your property into components with different depreciable lives. DeductFlow supports all four MACRS classes relevant to STR properties:

Step-by-Step: Entering Cost Seg Results

1. 1

   Enter Purchase Price and Land/Building Split

   Navigate to Assets > Add Property. Enter:

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   • Property address — For multi-property accounts, used to identify the property
   • Purchase price — Total cost including closing costs and broker fees
   • Closing date — This is the "placed in service" date for the building
   • Land value — Typically 15–30% of purchase price; use your property tax assessment, appraisal, or allocation from your cost seg study

   DeductFlow automatically calculates the depreciable building basis: purchase price minus land value. This is your 39-year depreciable amount before reclassification.

2. 2

   Enter Cost Segregation Study Results

   Your cost segregation report will provide a table of components with dollar values assigned to each class. In DeductFlow's Assets section, for each component class:

   • Click Add Asset
   • Name: e.g., "5-Year Personal Property (Cost Seg)" or specific component names if the study itemizes them
   • Date placed in service: property closing date (or improvement completion date if a lookback study)
   • Cost: the dollar value from the study for that class
   • Asset class: select 5-Year, 7-Year, or 15-Year MACRS

   Enter each class as a separate asset entry, or enter individual components if your study itemizes them (more detailed but better documentation).

3. 3

   Set Up Asset Classes

   For each asset entry, confirm the depreciation method and convention:

   • 5-year personal property: 200% declining balance, half-year convention (unless more than 40% placed in service in Q4, then mid-quarter)
   • 15-year land improvements: 150% declining balance, half-year convention
   • 39-year building: Straight-line, mid-month convention

   DeductFlow defaults to the correct method for each class automatically. Override only if your CPA has specified a different election.

4. 4

   Choose Bonus Depreciation or Section 179

   For 5-year, 7-year, and 15-year property, you can elect bonus depreciation or Section 179:

   • Bonus depreciation (2026 rate: 100%): Automatically applies to all qualifying property in the class. 100% of the asset cost is deducted immediately (restored under the OBBBA for property acquired after Jan 19, 2025).
   • Section 179: Elect to expense up to $1,220,000 (2026 limit) of qualifying property. Subject to taxable income limitation—cannot create a loss from the election alone.
   • No election: Depreciate over normal MACRS life without acceleration.

   Most STR hosts benefit most from bonus depreciation when they qualify for Schedule C treatment with active losses. Discuss with your CPA which approach maximizes your tax position.

5. 5

   Review the Depreciation Schedule

   Navigate to Assets > Depreciation Schedule. Review the year-by-year breakdown for all assets. Verify:

   • Year 1 total matches your cost segregation engineer's projection
   • Bonus depreciation amounts are correctly shown separately from regular MACRS depreciation
   • The 39-year building uses the mid-month convention for the first year (partial-year calculation)
   • Future-year depreciation amounts look reasonable
6. 6

   Export the Depreciation Schedule

   Navigate to Reports > Depreciation. Click Export Depreciation Schedule. This report provides your CPA with:

   • Asset description and placed-in-service date
   • Business use percentage
   • MACRS class, recovery period, and convention
   • Bonus depreciation amount
   • Regular MACRS depreciation amount
   • Prior accumulated depreciation (for assets in multi-year service)

   Your CPA transcribes this onto Form 4562, which supports the depreciation deduction claimed on IRS Line 13.

Bonus Depreciation Rate History

Frequently Asked Questions

How does cost segregation work for a short-term rental?

An engineering study splits your property's depreciable basis into components: 5-year personal property (appliances, furniture), 7-year equipment, 15-year land improvements (fencing, driveways, pools), and the 39-year building structure. With 100% bonus depreciation restored for property acquired after January 19, 2025, the short-life classes can be deducted in full in year one. To track it, record each class's allocated basis and placed-in-service date, apply the bonus rate for that year, and keep the engineer's study with your return.

What is cost segregation and why does it matter for STR hosts?

Cost segregation is an engineering study that reclassifies parts of your STR property from 39-year depreciable life (building) to shorter lives: 5-year (personal property like appliances), 7-year (certain fixtures), and 15-year (land improvements). Shorter class lives mean faster depreciation deductions. Combined with bonus depreciation, cost segregation can generate first-year deductions of 20–40% of a property's value.

What is the bonus depreciation rate in 2026?

Under current law (the One Big Beautiful Bill Act), bonus depreciation in 2026 is 100% for qualifying property acquired after January 19, 2025. This applies to 5-year, 7-year, and 15-year MACRS property. The full cost is deducted in the year placed in service.

Do I need an engineering cost segregation study, or can I do this myself?

For properties valued above $500,000, a formal engineering cost segregation study by a qualified firm is strongly recommended. The study provides defensible component values for audit purposes and typically finds more reclassifiable property than a self-directed approach. For smaller properties, a 'cost segregation lite' or self-directed analysis may suffice. See our guide to cost segregation providers for options at every price point.