Using Cost Segregation and Bonus Depreciation for Your STR

As we move through 2025, many real estate investors are looking for ways to boost cash flow, reduce tax liability, and make their short-term rental (STR) properties work harder for them. One powerful strategy? Cost segregation, paired with bonus depreciation.

Here’s a real-world example of how much tax savings this strategy can unlock—using a $1 million short-term rental condo in Keystone, Colorado.

Property Snapshot

• Purchase Price: $1,000,000
• Land Value (non-depreciable): $200,000 (20%)
• Depreciable Basis (Building): $800,000
• Use: Short-term rental (average stay < 7 days)
• Placed in Service: 2025
• Cost Segregation Estimate: 30% of building basis reclassified into short-life assets (5, 7, 15 years)

What Is Cost Segregation?

Cost segregation is an IRS-approved tax strategy that breaks your property into components with shorter useful lives—so you can depreciate them faster. Think: appliances, carpet, cabinets, light fixtures, and landscaping.

Instead of depreciating everything over 27.5 years, a study might reallocate:

• 5-year assets: $120,000
• 7-year assets: $60,000
• 15-year assets: $60,000
• Remaining long-life assets: $560,000 (27.5-year depreciation)

Bonus Depreciation in 2024: 80%

As of 2024, bonus depreciation allowed 80% of short-life assets (5-, 7-, 15-year) to be deducted in the first year.

Let’s see how the numbers shake out for both 80% and 100% bonus depreciation:

Scenario 1: 80% Bonus Depreciation (Previous Law – 2024)

• · Bonus-eligible short-life assets: $240,000
• 80% deduction in Year 1: $192,000
• Remaining $48,000 depreciated normally (~$9,600 Year 1)
• 27.5-year straight-line depreciation: $20,364

Total Year 1 Depreciation: $221,964
Estimated Tax Savings @ 35%: $77,688

Scenario 2: 100% Bonus Depreciation (Retroactive to Jan 2025)

• Full $240,000 deducted in Year 1
• Plus $20,364 from long-life depreciation

Total Year 1 Depreciation: $260,364
Estimated Tax Savings @ 35%: $91,128

Bottom Line: What’s the Difference?

Why This Matters for STR Investors

If you qualify for material participation, these losses can offset W-2 income—not just rental income. That’s what makes STRs so powerful in today’s tax landscape. Even with 80% bonus depreciation, a cost segregation study can unlock $70K–90K+ in deductions in Year 1 alone.

Key Takeaways

• A $1M Keystone condo could deliver $75K–90K in first-year tax deductions.
• Cost segregation + bonus depreciation = front-loaded tax savings and cash flow.
• The sooner you place a property into service, the more you can capitalize on bonus depreciation.
• A cost segregation study ($3K–$10K) often pays for itself in Year 1.
• Always consult your CPA and a cost seg engineer before filing.

Thinking About Buying an STR in Summit County?

If you’re exploring opportunities in Keystone or the surrounding Summit County market, let’s connect. I can help you evaluate investment potential—and connect you with the right tax professionals to make your numbers work.