--- title: Is a Cost Segregation Study Worth It on a Short-Term Rental? description: Marcus Mire, CPA runs the real math on a $1M short-term rental cost seg study, plus the two conditions that decide whether it actually pays off. image: https://www.mire.group/hubfs/MireGroup-Hero-Cost-Seg-Short-Term-Rental.png --- [Skip to the main content.](https://www.mire.group/blog/is-a-cost-segregation-study-worth-it-on-a-short-term-rental#main-content) [![Mire Group CPAs](https://www.mire.group/hs-fs/hubfs/Logos/MireGroup%20CPAs%20White%20Logo.png?width=1003&height=497&name=MireGroup%20CPAs%20White%20Logo.png "Mire Group CPAs")](https://www.mire.group) [![Mire Group CPAs](https://www.mire.group/hs-fs/hubfs/Logos/1.png?width=1021&height=488&name=1.png "Mire Group CPAs")](https://www.mire.group) - [About Us](https://www.mire.group/about) - [Plans](https://www.mire.group/accounting-and-tax-plans) - [Articles](https://www.mire.group/blog) - [Podcast](https://www.mire.group/make-it-count-podcast/) Search *Search* [Work With Us](https://www.mire.group/work-with-us) Toggle Menu Search *Search* Toggle Menu [Work With Us](https://www.mire.group/work-with-us) - [About Us](https://www.mire.group/about) - [Plans](https://www.mire.group/accounting-and-tax-plans) - [Articles](https://www.mire.group/blog) - [Podcast](https://www.mire.group/make-it-count-podcast/) [*Facebook*](https://www.facebook.com/miregroupcpa) [*Instagram*](https://www.instagram.com/miregroup_cpas/) [*LinkedIn*](https://www.linkedin.com/company/miregroupcpas/) [*Youtube*](https://www.youtube.com/channel/UC_4dTVwJh9xStWdKY1bPn5Q) 4 min read # Is a Cost Segregation Study Worth It on a Short-Term Rental? [![Picture of Mire Group Marketing](https://www.mire.group/hs-fs/hubfs/MireIconOnly.png?width=30&name=MireIconOnly.png) Mire Group Marketing](https://www.mire.group/blog/author/mire-group-marketing) : Oct 8, 2026, 12:06:09 PM ![cost segregation](https://www.mire.group/hubfs/MireGroup-Hero-Cost-Seg-Short-Term-Rental.png) It can be. But only when two things are true. Your rental has to average stays of seven days or less, and you have to be able to prove you materially participate. When both hold, a cost segregation study can turn a profitable short-term rental into a large paper loss that offsets your W-2 or business income. When either one fails, the loss stays passive and you've really done nothing. I'm Marcus Mire, CPA and founder of MireGroup CPAs in Lafayette. People ask me about the short-term rental loophole all the time, mostly offline. So let's run the actual numbers, the same example I walked through on our Tax Tip Thursday video. ## **What does a cost segregation study actually do?** When you buy a rental, you don't deduct the purchase price all at once. You depreciate it. You expense a little portion of the asset each year over its life. A short-term rental is treated like a commercial property, so the building gets written off over 39 years. That's slow. A cost segregation study speeds it up. An engineering firm looks at your property and identifies the pieces the IRS regulations let you write off faster. Things like flooring, light fixtures and appliances. That's tangible personal property, and it can be written off over 5, 7 or 15 years instead of 39. Then it gets better. Property with those shorter lives qualifies for bonus depreciation, which means you can take all of the depreciation on that asset in the first year.   ## **What does the math look like on a $1 million short-term rental?** Say you buy a $1,000,000 condo at the beach. We'll assume there's no land value, because you can't depreciate land. A condo is a good example for that. You rent it for $60,000 a year. After property taxes, interest, HOA dues and all your other expenses, you net about $20,000. (That's interest only. Principal payments on the loan aren't an expense.) **Without a cost seg study.** $1,000,000 over 39 years. I round that to 40 to keep the math easy, so about $25,000 of depreciation a year. Your $20,000 of net income minus $25,000 of depreciation is a $5,000 loss. **With a cost seg study.** Typically, a study identifies 20% to 30% of the property as 5-, 7- or 15-year property you can write off in year one. Split the difference at 25%. That's $250,000 of bonus depreciation. | | **No cost seg** | **With cost seg** | | --- | --- | --- | | Rental income | $60,000 | $60,000 | | Expenses (taxes, interest, HOA, etc.) | -$40,000 | -$40,000 | | Net income before depreciation | $20,000 | $20,000 | | Year-one depreciation | -$25,000 | -$250,000 | | Taxable result | -$5,000 loss | -$230,000 loss |   Now you have a property that made money in real life and lost $230,000 on paper. That's what everybody's talking about when they say the short-term rental loophole: average stays of seven days or less, paired with a cost seg study that accelerates depreciation. To keep it clean, I left out the regular depreciation on the remaining $750,000. In real life your year-one number would be a little bigger. ## **What has to be true for that loss to offset your W-2 or business income?** This is a two-prong test, and you need both. **Prong one: an average stay of seven days or less.** Rental property is normally passive in the tax world. Passive losses can only offset passive income, or get used when you sell. When the average stay is seven days or less, the rental stops being passive by nature. It's treated more like a trade or business, and those losses can offset your W-2 or business income. **Prong two: material participation.** You have to materially participate in the rental. Section 469 has a seven-factor test for this, and it's harder to meet than most people think. Generally, you have to be the one working in the property. If a property manager is doing the work, there are some caveats, but it's hard to materially participate. If you don't materially participate, you've really done nothing. You're back in the passive rules, and that $230,000 loss only offsets passive income. We walk through the passive rules and material participation in more detail in [Can Real Estate Losses Offset Your W-2 or Business Income?](https://www.mire.group/blog/can-real-estate-losses-offset-your-w-2-or-business-income) ## **What happens if you sell the property?** This is the part a lot of people forget. Every dollar of depreciation you take lowers your basis in the property. Sell a few years after the cost seg study and much of that depreciation comes right back as taxable income. That's called depreciation recapture, and [we break down exactly how it works here](https://www.mire.group/blog/BLOG-2-SLUG-PLACEHOLDER). ## **How do you know if the advice you're getting is solid?** Look. If somebody is telling you to do a cost segregation study on a short-term rental and they're not asking how you'll document an average stay of seven days or less, or how you'll prove nearly 100% that you materially participate, I would not take that advice. That's an aggressive position, and it's going to be hard to defend in an audit. The best firms I know doing real estate work won't even take you on as a client without material participation proof in the form of contemporaneous records. Meaning you kept them as you went. We talk a lot at MireGroup about return on hassle. Make tax moves that are also good business moves. A cost seg on a short-term rental can absolutely be one. But if it means logging hours you don't really work, or you plan to sell in a couple of years, the return may not be worth the hassle. Buying something mostly for the deduction is one of the [tax planning mistakes we see cost business owners the most](https://www.mire.group/blog/2-tax-planning-mistakes-that-cost-small-business-owners). ## **Frequently asked questions** ### **What is the short-term rental loophole?** It's the combination of a rental with an average stay of seven days or less and a cost segregation study that accelerates depreciation. The short average stay makes the rental non-passive. The cost seg study creates a large paper loss. If you materially participate, that loss can offset your W-2 or business income. ### **How much of a property can a cost segregation study write off in the first year?** In my experience, a study typically identifies 20% to 30% of the property as 5-, 7- or 15-year property. That portion qualifies for bonus depreciation and can be written off in year one. On a $1 million property, that's roughly $200,000 to $300,000. ### **Can I still take the losses if I use a property manager?** There are caveats where a property manager wouldn't disqualify you. But generally speaking, if you have other people doing the work for you, it's hard to materially participate. That's the prong that trips most people up. ### **Can I depreciate the land my rental sits on?** No. Land isn't depreciable, so the land value comes out before you calculate depreciation. That's why a condo, with little or no separate land value, makes a clean example. ### **What happens to the loss if I don't materially participate?** It stays passive. Passive losses can only offset passive income, or get used when you sell the property. So the cost seg study still creates the loss, but you can't use it against your W-2 or business income. Thinking about a cost seg on a short-term rental? Let's run your numbers before you pay for the study. [We'd love to help.](https://www.mire.group/work-with-us) - [Tweet](https://twitter.com/share) [![cost segregation](https://www.mire.group/hubfs/MireGroup-Hero-Cost-Seg-Short-Term-Rental.png)](https://www.mire.group/blog/is-a-cost-segregation-study-worth-it-on-a-short-term-rental) 4 min read #### [Is a Cost Segregation Study Worth It on a Short-Term Rental?](https://www.mire.group/blog/is-a-cost-segregation-study-worth-it-on-a-short-term-rental) ![Picture of Mire Group Marketing](https://www.mire.group/hs-fs/hubfs/MireIconOnly.png?width=30&name=MireIconOnly.png) [Mire Group Marketing](https://www.mire.group/blog/author/mire-group-marketing): Oct 8, 2026, 12:06:09 PM It can be. But only when two things are true. Your rental has to average stays of seven days or less, and you have to be able to prove you materially... 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