Your rental makes money. It should also save you money.
Your rental makes money. It should also save you money.
The short-term rental tax strategy — cost segregation plus material participation — can let qualifying owners deduct a large share of their property's value in year one, often against W-2 or business income. Here's how it works, and how to find out what your property could unlock.
See what your property could unlock
See what your property could unlock
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What a cost segregation study actually does
What a cost segregation study actually does
When you buy a rental property, the IRS lets you depreciate it — deduct its cost over time. By default, that’s painfully slow: 27.5 or 39 years. A cost segregation study is an engineering-based analysis that breaks your property into its components. Flooring, appliances, cabinetry, decks, landscaping, driveways — many of these qualify as 5-, 7-, or 15-year property instead of being lumped into the building’s decades-long schedule. Reclassifying those components front-loads your depreciation. And with 100% bonus depreciation restored for qualifying property, much of that reclassified value can often be deducted in the first year rather than spread across decades.
When you buy a rental property, the IRS lets you depreciate it — deduct its cost over time. By default, that’s painfully slow: 27.5 or 39 years. A cost segregation study is an engineering-based analysis that breaks your property into its components. Flooring, appliances, cabinetry, decks, landscaping, driveways — many of these qualify as 5-, 7-, or 15-year property instead of being lumped into the building’s decades-long schedule. Reclassifying those components front-loads your depreciation. And with 100% bonus depreciation restored for qualifying property, much of that reclassified value can often be deducted in the first year rather than spread across decades.
Studies commonly reclassify 20-35% of a property’s cost basis into faster depreciation categories. The exact number depends on your property — that’s what the study determines.
Why this works especially well for short-term rentals
Why this works especially well for short-term rentals
For most rental properties, big depreciation deductions run into a wall: passive loss rules. Losses from long-term rentals are generally passive and can only offset passive income — not your salary or business income. Short-term rentals can be different. If your average guest stay is seven days or less, the IRS doesn’t treat the activity as a rental activity under the passive loss rules. If you also materially participate in running the property, the losses can be non-passive — meaning they may offset your W-2 wages or business income. That combination — a cost seg study creating a large year-one deduction, plus STR status making that deduction usable against active income — is what people mean by the short-term rental loophole.
For most rental properties, big depreciation deductions run into a wall: passive loss rules. Losses from long-term rentals are generally passive and can only offset passive income — not your salary or business income. Short-term rentals can be different. If your average guest stay is seven days or less, the IRS doesn’t treat the activity as a rental activity under the passive loss rules. If you also materially participate in running the property, the losses can be non-passive — meaning they may offset your W-2 wages or business income. That combination — a cost seg study creating a large year-one deduction, plus STR status making that deduction usable against active income — is what people mean by the short-term rental loophole.
Material participation, plainly
Material participation, plainly
The most common test: you spend 100+ hours on the property during the year, and more than anyone else (including your cleaner and any manager). Time on guest communication, pricing, maintenance coordination, supplies, and bookkeeping can all count. Documentation matters — keep a log.
The most common test: you spend 100+ hours on the property during the year, and more than anyone else (including your cleaner and any manager). Time on guest communication, pricing, maintenance coordination, supplies, and bookkeeping can all count. Documentation matters — keep a log.
What this can look like
What this can look like
Say you buy a $750,000 beach cottage and run it as a short-term rental you materially participate in. A cost seg study reclassifies 28% of the depreciable basis — roughly $180,000 — into 5-, 7-, and 15-year property. With bonus depreciation, most of that becomes a first-year deduction. At a 35% marginal rate, that’s on the order of $60,000+ in potential first-year tax savings.
Illustrative only. Actual results depend on your purchase price, land allocation, study findings, income, filing status, and participation. This is not tax advice — confirm your situation with a qualified tax professional.
From estimate to filed return
From estimate to filed return
1. Instant estimate — Run the calculator at the top of the page to see your ballpark first-year deduction.
2. Intake & feasibility — Submit your property details. A cost seg specialist reviews whether a study makes sense for your numbers. If it doesn’t, they’ll tell you.
3. Engineering study — A detailed, IRS-defensible analysis of your property’s components, delivered as a report your CPA files with.
4. File & save — Your CPA applies the study to your return. Studies can also be done retroactively for properties you already own, via a catch-up adjustment — no amended returns needed.
Is this worth it for you?
Is this worth it for you?
Likely a fit
• You bought (or are buying) an STR, especially in the last few years
• Average guest stays are 7 days or under
• You’re hands-on with the property — or willing to be for a qualifying year
• You have meaningful W-2 or business income you’d like to offset
Probably not a fit
• Fully hands-off owners who can’t meet material participation
• Very low purchase prices where study cost outweighs the benefit
• Owners planning to sell very soon (depreciation recapture reduces the benefit)
The honest answer sometimes is not yet or not this year. The feasibility review is free — you’ll know before you spend anything.
Get your free feasibility review
Get your free feasibility review
Tell us about your property. A specialist will confirm whether a study pencils out — and what it would save you — before you commit to anything.
Common questions
Common questions
Does Maizon do the cost seg study?
No — studies are performed by our partner, a specialist firm focused on rental property cost segregation. Maizon manages your property; they handle the engineering study; your CPA files it.
Can I do this on a property I bought years ago?
Yes. A look-back study with a catch-up adjustment (Form 3115) lets you claim missed depreciation in the current year without amending prior returns.
What does a study cost?
It varies with property size and complexity — the feasibility review will give you a firm quote. A study only makes sense when projected savings are a multiple of the fee, which is exactly what the review checks.
Will this trigger an audit?
Cost segregation is a well-established, IRS-recognized practice with its own IRS Audit Techniques Guide. What matters is that the study is engineering-based and defensible — which is why you want a specialist, not a spreadsheet.
Does hiring a property manager kill material participation?
It can make the more-than-anyone-else test harder, which is why the qualifying-year strategy and hour logging matter. This is a nuance worth discussing in the feasibility review — structure matters.
Is this tax advice?
No. This page is educational. Your specific outcome depends on facts only you and your tax professional know. Always confirm strategy with a qualified CPA or tax advisor before acting.
Maizon is a property management company, not a CPA firm, law firm, or registered tax advisor. Nothing on this page is tax, legal, or financial advice. Cost segregation studies and estimates are provided by RentalWriteOff, an independent third party. Tax outcomes depend on individual circumstances; consult a qualified professional before making decisions. Examples are illustrative only.
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