Study Overview
This case study examines a Short-Term Rental property acquired in 2025 for $1,208,500 and applied in the 2025 tax year. By also leveraging 100% bonus depreciation, the cost segregation study reclassified eligible building components into shorter recovery periods, maximizing upfront tax savings resulting in $165,669 in savings.
|
Property Type |
Short-Term Rental |
|
First-Year Tax Savings |
$165,669 |
|
Date Placed In-Service |
Dec. 2025 |
|
Tax year study applied |
2025 |
|
Bonus depreciation |
100% |
|
Purchase price(less land) |
$1,208,500 |
|
Accelerated Method |
$449,046 |
|
Straight-Line Method |
$1,293 |
|
Increased Deduction |
$447,753 |
|
Tax Rate |
37% |
Project Overview
This short-term rental property underwent a comprehensive cost segregation study to identify assets eligible for accelerated depreciation. The engineering-based analysis resulted in significant reclassification of building costs from 27.5-year real property to shorter recovery periods.
Study Results
The detailed engineering analysis successfully reclassified nearly 37% of the total building costs into accelerated depreciation categories:
*Also refer to “Building Allocation After Study” Graph Below
Key Reclassified Assets
5-Year Property ($157,105) included:
- Kitchen appliances (refrigerator, dishwasher, microwave
- Washer and dryer
- WiFi router, security systems, and smart-home devices
- Patio leisure furniture
- Guest amenity stations
- Living room and bedroom furniture
15-Year Land Improvements ($290,040) included:
- Irrigation and sprinkler systems
- Retaining walls and decorative stonework
- Sod, trees, shrubs and additional plants
- Driveway, walkway, and parking areas
- Fences and pergola
- Exterior lighting systems
- Swimming pool
Building Allocation After Study
5-Year
$157,105 Re-allocated
15-Year
$290,040 Re-allocated
27.5-Year
$761,355 Re-allocated
Financial Impact
By accelerating depreciation on $1,208,500 of the property’s cost basis, this study created substantial first-year tax deductions and improved cash flow. The identification of personal property and land improvements allowed for:
- Immediate bonus depreciation eligibility on qualifying assets
- Accelerated depreciation schedules on shorter-life property
- Enhanced cash flow through reduced tax liability
- Proper cost basis documentation for future disposition analysis
Building Systems Documentation
The study included comprehensive building systems documentation to support future capitalize-versus-expense decisions in accordance with IRS Tangible Property Regulations. This documentation provides:
- Current replacement cost benchmarks for each building system
- Detailed asset inventories by depreciable life
- Support for partial disposition elections on future improvements
- Compliance with IRC Section 1.263(a)-3 requirements
Compliance & Methodology
The study was conducted in full accordance with:
- IRS Revenue Procedure 87-56 asset classification guidelines
- Modified Accelerated Cost Recovery System (MACRS) regulations
- IRC Section 168 property classification standards
- Tangible Property Final Regulations (Treasury Decision 9636)
All asset classifications were supported by site inspection, architectural plans, construction documentation, and established engineering cost analysis standards designed to withstand IRS scrutiny.
Why This Matters
This case study demonstrates how commercial property owners can unlock significant tax savings through proper cost segregation. By identifying and reclassifying nearly $1,208,500 in accelerated depreciation assets along with 100% bonus depreciation, the property owner gained immediate tax benefits while maintaining full IRS compliance.
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