Why depreciation matters for STR hosts
Depreciation lets you deduct the cost of your rental property over time — even though you haven't paid cash out of pocket in that year. For a property worth $400,000 (excluding land), that's roughly $14,500 per year in deductions, every year, for 27.5 years.
For short-term rental hosts who qualify for the STR tax loophole and can use losses against ordinary income, depreciation is the deduction that often tips the property into a net loss position — creating a real tax offset against your W-2 or business income.
Despite this, many hosts either skip depreciation (a costly mistake — more on that below) or claim only the basic 27.5-year deduction without exploring accelerated options.
The "allowed or allowable" rule: The IRS reduces your basis by depreciation you were allowed to take — whether or not you actually claimed it. If you skip depreciation for 5 years, you still owe recapture tax on those deductions when you sell. Always claim it.
How depreciation works: the basics
The IRS uses the Modified Accelerated Cost Recovery System (MACRS) to determine how quickly different types of assets can be depreciated. For residential rental property — including short-term rentals — the standard recovery period is 27.5 years using the straight-line method.
"Straight-line" means you take an equal deduction each year over the recovery period. There's no front-loading — just a steady annual deduction until the property is fully depreciated or you sell.
Land is not depreciable. The IRS does not allow you to depreciate the value of land because it doesn't wear out. You must allocate your purchase price between land and building before calculating your deduction.
How to calculate your depreciable basis
Your depreciable basis is the amount you can spread over 27.5 years. Here's how to arrive at it:
Example
Purchase price: $425,000. Closing costs: $8,000. Land value (25%): $108,250. Depreciable basis: $324,750. Annual deduction: $324,750 ÷ 27.5 = $11,809/year.
Bonus depreciation on personal property
Bonus depreciation lets you deduct a large percentage of qualifying property in the first year instead of spreading it over the standard recovery period. It applies to personal property — not the building itself — including:
- Furniture (sofas, beds, tables, chairs)
- Appliances (refrigerator, washer/dryer, dishwasher)
- Electronics (TVs, smart home devices)
- Carpeting and flooring (if not structural)
- Certain qualified improvement property (QIP)
- The building structure itself
- Land (never depreciable)
- Used property purchased from a related party
- Improvements placed in service before the property was put into rental use
Bonus depreciation rates have been declining since 2022. Here's the current schedule:
| Tax year | Bonus depreciation rate |
|---|---|
| 2022 | 100% |
| 2023 | 80% |
| 2024 | 60% |
| 2025 | 40% |
| 2026 | 20% |
| 2027+ | 0% (unless extended by Congress) |
Note: Congress has proposed restoring 100% bonus depreciation. Rules may change — verify the current rate with your tax advisor before filing.
Cost segregation: accelerating depreciation further
A cost segregation study is an engineering-based analysis that reclassifies components of your building from 27.5-year property to shorter-lived categories (5, 7, or 15 years). Components like specialty lighting, decorative flooring, certain plumbing fixtures, and outdoor elements may qualify.
The effect is significant: instead of deducting 1/27.5 of the cost of those components each year, you deduct them over 5 or 15 years — or take bonus depreciation on the 5-year items immediately.
- Property value over $500,000
- You materially participate and can use losses now
- You recently purchased or substantially renovated
- You plan to hold for several years
- Property under $300,000 (study cost often exceeds benefit)
- You're a passive investor who can't use the losses
- You plan to sell within 1–2 years
- Bonus depreciation rate is very low (diminishing acceleration benefit)
Study costs typically range from $5,000 to $15,000 depending on property size and complexity. Most STR hosts with a single property will get more value by ensuring they're correctly claiming straight-line depreciation and bonus depreciation on their personal property purchases.
Depreciation recapture when you sell
Depreciation is not a free lunch. When you sell the property, the IRS recaptures the depreciation you claimed (or were allowed to claim) and taxes it at a maximum rate of 25% — regardless of your regular capital gains rate.
This is called unrecaptured Section 1250 gain. It applies to the cumulative depreciation on the building structure. Personal property depreciation may be subject to ordinary income recapture under Section 1245.
Example of recapture
You claimed $11,809/year for 8 years = $94,472 in cumulative depreciation. When you sell, $94,472 of your gain is taxed at 25% (the recapture rate) rather than your long-term capital gains rate. If you're in the 15% long-term capital gains bracket, the recapture adds roughly $9,447 in extra tax.
Recapture doesn't mean depreciation wasn't worth taking. The present-value benefit of the annual deduction almost always exceeds the future recapture cost, especially when losses were used to offset high ordinary income. But it should factor into your exit strategy.
One way to defer recapture: a 1031 exchange lets you roll proceeds into another investment property and defer both capital gains and recapture taxes until a future sale.
Mixed-use property: depreciation when you also use it personally
If you stay at your Airbnb yourself during the year, you can only depreciate the rental-use percentage of the property. The IRS doesn't let you deduct depreciation on days you used the property for personal enjoyment.
The rental-use percentage is calculated as:
Rental days ÷ (Rental days + Personal use days)
Example
You rented the property 200 days and stayed there yourself 20 days. Rental-use percentage: 200 ÷ 220 = 90.9%. If your annual depreciation would be $11,809, you can claim $10,733 (90.9%).
Important: Days when your property was vacant but available for rent do not count as personal use days. Only days you (or a family member) actually used the property count against you.
If personal use exceeds 14 days or 10% of the days it was rented (whichever is greater), you're in "vacation home" territory — additional limits apply and you can't deduct a net loss. Most STR hosts who keep personal use low avoid this trap.
Section 179 vs bonus depreciation: which should you use?
Two separate rules let you accelerate depreciation on personal property in year one: Section 179 and bonus depreciation. They sound similar but have an important difference for STR hosts.
| Feature | Section 179 | Bonus depreciation |
|---|---|---|
| Can create a net loss? | No — limited to rental income | Yes — can exceed income |
| Applies to used property? | Yes | Yes (if new to you) |
| Annual limit | $1.22M (2024) | No dollar cap |
| Rate in 2025 | 100% (up to limit) | 40% |
For STR hosts using the tax loophole: Bonus depreciation is almost always the better choice. Section 179 is limited to your rental income and can't create or deepen a loss. If you're trying to offset W-2 or business income with rental losses, bonus depreciation is the mechanism that makes that possible.
How depreciation supercharges the STR tax loophole
The STR tax loophole lets short-term rental hosts who materially participate treat rental losses as non-passive — meaning those losses can offset W-2 income, business income, or any other ordinary income. Depreciation is what often creates those losses.
How the math works
If you materially participate and the average stay was 7 days or less, this $3,809 loss offsets your ordinary income directly.
Add a cost segregation study with bonus depreciation on personal property — say an additional $30,000 in accelerated deductions in year one — and the loss becomes $33,809. At a 32% marginal rate, that's over $10,800 in actual tax savings in a single year.
The loophole requires proof: documented material participation and an average rental period of 7 days or less. Without those, the losses stay passive and depreciation's full power is locked away until you sell.
Where to report depreciation on your tax return
Rental depreciation is reported on Schedule E (Form 1040), Part I. You'll enter depreciation as a separate line item under expenses for each rental property. The depreciation itself is calculated on Form 4562 (Depreciation and Amortization), which feeds into Schedule E.
Most tax software handles this automatically once you enter the property details (purchase date, purchase price, land allocation, and improvements). If you're working with a CPA, provide them with a complete asset list including furniture, appliances, and improvements with their individual purchase dates and costs.
- Closing disclosure from the purchase
- Property tax assessment (for land/building split)
- Receipts for all capital improvements with dates
- Receipts for furniture and appliances purchased for the rental
- Date the property was first placed in service as a rental
Frequently asked questions
How many years do you depreciate an Airbnb property?
The building structure depreciates over 27.5 years (straight-line, MACRS). Furniture and appliances typically use a 5-year recovery period. Land improvements like fencing and landscaping use 15 years. Land itself is never depreciated.
Do you have to depreciate rental property?
Yes, effectively. The IRS uses the "allowed or allowable" rule — your basis is reduced by depreciation you were entitled to take, whether or not you claimed it. Skipping the deduction doesn't avoid recapture; it just means you paid tax on income you could have deferred. Always claim it.
Can you take bonus depreciation on an Airbnb?
Yes, on personal property components — furniture, appliances, fixtures. Not on the building structure. The rate is 40% in 2025, declining to 20% in 2026. A cost segregation study can identify additional components eligible for bonus depreciation.
What is depreciation recapture?
When you sell, the IRS taxes your cumulative depreciation at up to 25% (unrecaptured Section 1250 gain). This is separate from your regular capital gains rate. It applies to depreciation claimed on the building. A 1031 exchange can defer recapture by rolling proceeds into another rental property.
How do I split land and building value?
Use the assessed value ratio from your county property tax assessment. If land is assessed at $80,000 and the total assessed value is $300,000, land is roughly 27% of the total. Apply that percentage to your purchase price. An appraisal gives a more precise split if needed.
Can I take depreciation if I also use my Airbnb personally?
Yes, but only on the rental-use portion. Divide your rental days by total days used (rental + personal) to get the rental-use percentage. Apply that percentage to your full depreciation deduction. If personal use exceeds 14 days or 10% of rental days, vacation home rules apply and you cannot claim a net loss.
What is Section 179 and should I use it instead of bonus depreciation?
Section 179 lets you deduct qualifying personal property in the year you place it in service, similar to bonus depreciation. The key difference: Section 179 cannot exceed your rental income and cannot create a net loss. For STR hosts using the loophole to offset other income, bonus depreciation is almost always the better choice because it can create or deepen a loss.
What is a cost segregation study and do I need one?
A cost segregation study is an engineering analysis that reclassifies components of your property from 27.5-year to shorter-lived categories (5, 7, or 15 years), accelerating depreciation. Studies typically cost $5,000–$15,000 and are generally worth it for properties valued above $500,000 where you can use the resulting losses immediately. Most hosts with a single property get more value from correctly claiming standard depreciation and bonus depreciation on personal property.
Keep the records that support your deductions
Depreciation deductions are only as strong as the records behind them. Field Ledger is built for STR hosts who need organized documentation — from capital improvement receipts to expense tracking — ready for your CPA at year-end.
- Track capital improvements with dates and amounts
- Organize receipts and expenses by property
- Log participation activity to support the STR loophole
- Export clean records your CPA can use directly