Cost Segregation Studies for Airbnbs

In addition to being a great cash flow asset, owning an Airbnb property also opens the door to several tax-saving strategies, one of which is a Cost Segregation Study. Among these strategies, a Cost Segregation Study certainly holds the highest impact in the short-term. In this article, I'll walk you through why that is, as well as what the process looks like when getting a study done with COST APEX INC.

What is a Cost Segregation Study?

First, I'll explain briefly what a Cost Segregation Study is. For a more in-depth look, click here.

An Airbnb is an asset that you can depreciate over 27.5 years. In other words, each year you depreciate 1/27.5th of the total value minus the land, as land is non-depreciable. This is called your depreciable basis. While getting to depreciate 1/27.5th each year is nice, many parts of the property break down and will need to be replaced much sooner than 27.5 years. Think about the carpet, the appliances, the lights, and the window blinds—they all have much shorter lives. The IRS allows you, via a Cost Segregation Study, to separate the 27.5-Year bucket into several smaller, more appropriate buckets for assets with shorter lifespans. This allows you to take valuable depreciation sooner rather than later.

Additionally, Bonus Depreciation, which is available for properties placed in service in 2025 thanks to the Big Beautiful Bill, allows you to take the 5- and 15-Year buckets and depreciate 100% of them in year one. This often ends up being around 25% of the depreciable basis's amount, leading to massive tax savings in Year 1.

Real-World Example: Lake Tahoe Airbnb

Let's use some numbers to give you a better picture. You've bought a beautiful property right off Lake Tahoe, converted it into an Airbnb, and had a killer first year. You bought it for $1,800,000 and want to get a Cost Segregation Study done on it ASAP, as the first year is the most advantageous year to get one done. You reach out to COST APEX INC and get a free analysis and consultation about the situation and your property.

The team at COST APEX INC confirms that getting a study done on your Airbnb would be extremely beneficial in your scenario, so you move forward with the study.

COST APEX INC collects the necessary documents for the property and the receipts for all the furnishings you bought for the home, and the study begins.

If you or your spouse qualify as Real Estate Professionals, you'd be able to apply that against you and/or your spouse's W-2 income—this scenario is truly the golden ticket. If not, no worries, you'd still be able to apply it against the income from the Airbnb, and any leftover could be applied in the following year(s)!

What Should My Basis Be to Make a Cost Segregation Study Worth It?

Studies done for properties with a basis of even just $400,000 still have a lot to gain from getting a study done. The lower the basis, the more the cost of the actual study becomes a factor. As our Cost Segregation Studies for residential properties are only $1,200, it's typically not a concern.

How Soon Should I Get a Study Done?

The first year after purchasing the property and placing it in service is the best time to get a study done because you haven't depreciated anything yet. You get the full benefit. With every year that passes, you benefit slightly less and less. While every property is different, we find that getting a study done as late as 7-8 years after putting it in service/depreciating it can still be worth it. This is when the cost of the study starts to be a big factor, as other companies' studies are much more expensive than ours and will eat into the benefit.

After about 10 years, we usually recommend not getting a study done and sticking with the normal depreciation schedule, as it doesn't provide much benefit.

What If I Plan to Sell the Property?

When you sell a property after accelerating depreciation via a Cost Segregation Study, you'll end up having to pay recapture taxes, which can make getting a study done not worth it. This is a scenario you'll want to consult with your CPA about to make sure it makes sense. We find that if you can wait at least 5 years to sell, it can be worth it to have more of the savings up front.