Maximizing Tax Benefits: All About Accelerated Depreciation Studies for Residential Rental Property Owners

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If you’re a residential rental property owner and haven’t explored accelerated depreciation, you could be leaving significant funds in tax savings on the table. With changes to bonus depreciation taking effect this year, now is the time to discover how an accelerated depreciation study can unlock faster write-offs—and how solutions like Rental Property Refund make it simpler than ever to do it yourself. 

In this blog, we’ll dive into what accelerated depreciation is, how it works, and how residential rental property owners (including short-term rental hosts) can use solutions to estimate the potential benefits of their properties while maximizing their tax deductions with less hassle. 

Key Takeaways:

1. Accelerated depreciation allows residential rental property owners to reclassify specific assets, like landscaping or appliances, into shorter lifespans, improving cash flow and enabling faster tax write-offs. 

2. A segregation cost study identifies property components that qualify for accelerated depreciation, and modern software now makes this IRS-compliant strategy accessible and affordable for residential rental property landlords. 

3. With bonus depreciation phasing out (dropping to 40% this year), property owners who act now can still claim significant first-year deductions—especially when combining cost segregation with remaining bonus depreciation. 

4. Short-term rental owners may gain even more if they meet “material participation” standards, allowing depreciation losses to offset passive income, and software like Rental Property Refund makes it easy to run your own study without hiring expensive engineers.

What is Accelerated Depreciation?

Depreciation allows residential rental property owners to deduct the cost of their property over time. This often happens on a 27.5-year timeline for residential real estate. However, not every part of your rental property wears out at the same time or the same pace. 

Accelerated depreciation reclassifies specific parts of your property—like cabinets, appliances, or landscaping—into shorter lifespans (5, 7,or 15 years), allowing you to write off these expenses much faster. This means less taxable income, more deductions now, and better cash flow. 

What is a Cost Segregation Study?

A cost segregation study is the process of discovering and separating the elements of a property that depreciate more quickly, warranting accelerated depreciation. This IRS-compliant strategy has been used by large commercial investors for decades.

Now, thanks to more accessible and comprehensive software, residential rental property landlords can benefit from this strategy, too. 

The study allows you to categorize property components like: 

• Flooring and cabinets (5 to 7 years)

• Appliances (5 years)

• Outdoor enhancements like fencing or decks (15 years)

• Fixtures, lighting, and cabinetry (5 to 7 years) 

Why Residential Property Owners Should Care 

The primary reason why accelerated depreciation studies matter now is because bonus depreciation is being phased out. By this year, the number of 100% deductible items in a year will drop to 40%. This number will continue to drop unless legislation changes. 

For residential property owners, this means:

1. Delaying could mean losing out on significant funds in first-year deductions.  

2. If you complete a cost accelerated depreciation study this year, you can still deduct 40% upfront. 

3. Cost segregation helps you benefit even without bonus depreciation—but combining them is where significant savings stack up. 

Short-Term Rental Properties and Accelerated Depreciation

Vacation rental owners and short-term rental owners who host through platforms like VRBO and Airbnb stand to gain even more with accelerated depreciation studies. Why? Because if your short-term rental meets the "material participation” test, it could be exempt from passive loss limitations. This means that depreciation losses can directly reduce your income. 

If you’re running a short-term rental and haven’t considered an accelerated depreciation study, this year could be your biggest tax-saving year yet.

Using Rental Property Refund Software: A Strong DIY Tax Strategy 

Traditional cost segregation studies cost significant funds and often require you to hire engineers to complete them. However, if your rental property has a depreciable basis under $1.2 million, innovative software solutions like Rental Property Refund can offer an easier, more affordable way to complete the study yourself. 

With Rental Property Refund, you can: 

• Identify qualifying assets and their reclassification timelines.

• Input essential property details and get a personalized report in minutes.

• Generate an IRS-compliant property depreciation schedule.

• Save on fees while still getting the most out of your deductions.

This is perfect for:

• Single-family rental homes

• Short-term vacation rentals

• Duplexes and triplexes

• Recently renovated residential properties 

When to Consider an Accelerated Depreciation Study 

While not every property needs an accelerated depreciation study, many residential rental property owners miss out by assuming they don’t meet study qualifications. Timing can make a significant difference in your total tax benefit. Even if you haven’t or don’t plan to buy a property this year, you could still be eligible. 

Below are a few examples of when it makes sense to consider a study.

1. You want to catch up on missed property depreciation from years before.

2. You converted your property into a rental.

3. You finished major property improvements or renovations. 

4. You purchased or placed a property in service in the last 15 years. 

FAQs About Accelerated Depreciation Studies for Residential Rental Property Owners 

What’s the difference between bonus depreciation and accelerated depreciation?

Accelerated depreciation spreads deductions over 5, 7, or 15 years instead of 27.5 years. Bonus depreciation allows you to deduct a percentage of those shorter-timeline assets all in the first year. These two strategies are often used together to help maximize tax benefits.

Do I need a CPA or engineer to do a cost segregation study?

Not when you use Rental Property Refund. While large commercial properties often require engineers, the software solutions available from Rental Property Refund are designed for smaller residential properties, making it easier to complete the study yourself. 

Can I do an accelerated depreciation study if I bought my rental property years ago?

Yes! You can do a lookback study and catch up on missed property depreciation without needing to amend past tax returns. This is a common strategy for residential properties bought within the last 15 years.

Is accelerated depreciation worth it for smaller residential properties?

Yes. Even for duplexes or single-family rentals, a cost segregation study can lead to thousands in tax savings, even more so when combined with bonus depreciation. Tools like Rental Property Refund make it budget-friendly for owners of residential rental properties.

Conclusion 

Accelerated depreciation is no longer just for big commercial investors. Thanks to accessible tools like Rental Property Refund, residential rental property owners can now benefit from this IRS-complaint strategy at a fraction of the traditional expense. 

With bonus depreciation decreasing every year, now is the time to maximize your property deductions. Don’t wait—begin your study to keep more of your rental income where it deserves to be, in your pocket. 

Are you ready to get started? Visit Rental Property Refund to run your first accelerated depreciation study and unblock your tax savings today!