Cost Segregation for Short-Term Rentals and Airbnb 2026

Unlike traditional long-term rentals, platforms like Airbnb and VRBO generate income that’s classified differently, which can push your STR income into higher taxable income brackets.

Cost segregation offers a smart, IRS-approved way to accelerate depreciation, reduce your tax burden, and improve cash flow—especially if you run multiple high-value properties.

But is it worth it? Let’s break it down.

Key takeaways

• Airbnb and other short-term rentals can be treated as non-residential for depreciation, enabling accelerated deductions that reduce taxable income.
• By reclassifying assets into 5-, 7-, and 15-year schedules, landlords can take significantly larger first-year deductions—even with 20% bonus depreciation in 2026.
• Properties over $250K, with average stays under 7 days and high rental income, benefit most from STR cost seg studies.
• Material participation logs, guest records, and financial documentation are required to offset active income and stay audit-ready.
• Coordinating with your CPA, planning for recapture, and using platforms like Baselane streamlines accounting, ensures compliance and helps you reinvest cash flow efficiently.

Why STRs need accelerated depreciation

If you’ve ever felt the sting of high taxes on Airbnb income, you’re not alone. STR owners often struggle with:

• Higher taxable income because rental income counts as active or non-passive in some scenarios.
• Uncertainty over whether expensive STRategies like cost segregation will justify the upfront fees.
• Fear of IRS audits, recapture, or complex recordkeeping.

Cost segregation can help solve these problems by shifting certain property components into shorter depreciation schedules, letting you take larger deductions in the first years of ownership. Paired with 2026’s 20% bonus depreciation rules, the potential savings are significant.

STR tax rules vs. long-term rentals

Here’s where Airbnb income differs from traditional rentals:

The “7-Day Rule” is key. If your average stay is seven days or less, the IRS treats your property as non-residential for depreciation purposes. That unlocks accelerated rental property tax deductions that can substantially reduce your taxable income in the first few years.

Bonus depreciation in 2026: What has changed?

In previous years, you could take 100% "bonus depreciation," allowing you to write off the entire value of 5, 7, and 15-year assets in Year 1. The Tax Cuts and Jobs Act (TCJA) initiated a phase-out of this benefit.

•   2024: 60% Bonus Depreciation
•   2025: 40% Bonus Depreciation
•   2026: 20% Bonus Depreciation

Despite the rate dropping to 20% in 2026, cost segregation short-term rental bonus depreciation remains a powerful tool. Even without 100% bonus depreciation, moving assets from a 39-year schedule to a 5-year schedule creates substantial tax deferral. You aren't losing the deduction; you are simply taking a portion upfront and the rest over a much shorter timeline than the standard 39 years.

How cost segregation works for Airbnbs

Here’s a breakdown of when you consider cost segregation and how to get it done.

Eligibility for short-term rental cost seg study

Not every property benefits equally. Cost segregation is generally worth considering if your Airbnb:

• Has a purchase price over $250K
• Maintains an average guest stay of 7 days or less
• Generates high rental income, where deductions could offset active income
• Will be held for 3+ years, rather than flipped quickly

Smaller properties or long-term rentals often don’t justify the study cost ($2,000–$5,000) due to limited tax savings.

Cost segregation study process for Airbnb

The process of conducting a study is the same as any other process. Here’s how the process unfolds:

1. Hire a certified provider: Choose a firm experienced with short-term rentals to produce a report that’s fully IRS-defensible.
2. Provide property records: Share architectural plans, invoices, and any other documentation they need.
3. Property analysis: The provider reviews your records and conducts an on-site inspection of the property.
4. Asset classification: Items like furniture, appliances, lighting, decor, and landscaping are categorized into shorter depreciation schedules—5, 7, or 15 years.
5. Bonus depreciation: Apply 20% bonus depreciation (2026) to maximize deductions in the first year.
6. Coordination with your CPA: The provider delivers the report, and your CPA integrates it into your tax return to ensure everything is compliant.

Example of an Airbnb cost segregation study

Let’s look at a practical example of Airbnb cost segregation. Suppose you purchase a vacation rental for $600,000. The land is worth $100,000, leaving a depreciable building basis of $500,000.

Without cost segregation, you would divide $500,000 by 39 years, resulting in a deduction of roughly $12,820 per year.

With a short-term rental cost segregation study, an engineer might identify:

•   $60,000 in 5-year assets (flooring, appliances, furniture).
•   $40,000 in 15-year assets (landscaping, pavement).

In the first year, even with 20% bonus depreciation in 2026, you would deduct 20% of that $100,000 immediately ($20,000). You would then depreciate the remaining balance of those assets over their accelerated 5 and 15-year lives. This results in a total first-year deduction that is significantly higher than the standard $12,820, thereby drastically reducing your taxable income.

Also read:

Best bank accounts for Airbnb

Best accounting software for rental properties

What to do after the cost segregation study

Real work starts once you get the study results back. Here are some of the most important steps you should take.

Review the cost segregation report with your CPA

• Go through every asset allocation: Ensure you understand which parts of your property were reclassified into 5-, 7-, or 15-year depreciation buckets.
• Confirm bonus depreciation application: Verify your CPA applies the 20% bonus depreciation correctly for 2026.
• Ask about IRS defensibility: Your CPA can flag areas where documentation may need strengthening in case of an audit.

Update reclassified values of your assets

Once the study is complete, record the newly classified assets in your accounting software. In Baselane, you can add asset values and depreciation schedules across all your properties. These fees are included in all the other reports, such as the Balance Sheet, which you can then export and share with your CPA.

Maintain detailed participation & guest logs

If you plan to use STR losses to offset active income, the IRS requires proof of material participation:

• Track hours spent managing your Airbnb, including bookings, guest communication, and property maintenance.
• Keep guest stay records to verify average stays under 7 days.

With Baselane, you can maintain a clear financial record of all Airbnb expenses and income, collect rent and Airbnb deposits through our integrated banking and bookkeeping. Having a single source of truth makes year-end reporting much easier and provides audit-ready documentation.

Plan for depreciation recapture

Depreciation recapture can create a tax hit when you sell your property. To minimize that, work with your CPA to project potential recapture liabilities based on the expected sale price and remaining depreciation on rental property.

Additionally, time your sales strategically or use strategies such as 1031 exchanges to defer taxes.

Schedule annual reviews

Even after the study, check that depreciation schedules remain accurate and reflect any property changes. Keep up-to-date participation logs and track rental property expenses yearly to stay compliant.

As you acquire new properties, reassess whether additional cost segregation or bonus depreciation strategies are worthwhile for new acquisitions.

Manage the after-study results with Baselane

Cost segregation can help you accelerate depreciation and boost cash flow in the initial years. But only if paired with organized, accurate accounting for rental property.

Baselane simplifies this process by centralizing rental income, expenses, and property-level analytics on a single platform. From recording depreciation schedules to CPA-ready reports, you can capture every eligible deduction and claim larger tax benefits. Open your Baselane account today!