How Does Depreciation Work on a Short-Term Rental?
Depreciation lets you recover the cost of the rental property over time, but only the depreciable basis gets written off. Land is never depreciated, the building is usually recovered over 27.5 years for residential rental property, and furniture or equipment may follow shorter schedules that create larger early deductions.
Start with the right basis number
If you buy an STR for $500,000 and allocate $100,000 to land, your starting building basis is roughly $400,000 before acquisition adjustments. Closing costs such as title fees, recording charges, and some legal fees can increase basis, while insurance escrows and prepaid interest do not. On that $400,000 building basis, straight-line depreciation over 27.5 years is about $14,545 per full year. A bad land allocation can distort that number for the life of the property.
Not every asset follows the same recovery period
The structure is one asset class, but the contents and certain land improvements can sit on much shorter schedules. Beds, couches, tables, appliances, and electronics are often five-year property. Carpeting and some dedicated fixtures may land in five or seven years, while fencing, driveways, and outdoor improvements can follow 15-year treatment. That is why a furnished STR usually produces a larger first-year deduction than a bare long-term rental purchased for the same price.
| Asset type | Typical recovery life | Example first-year implication |
|---|---|---|
| Building | 27.5 years | $400,000 basis generates roughly $14,545 annual depreciation |
| Furniture and appliances | 5 years | $20,000 package may create much faster write-off |
| Land improvements | 15 years | Fence or driveway may recover faster than the building |
Depreciation helps now and recapture matters later
Depreciation reduces current taxable income, but it also creates future recapture exposure when the property is sold. Many owners focus on saving $10,000 or $20,000 in current tax and forget that prior depreciation can later be taxed at recapture rates. That does not make depreciation bad; it means the buy-hold-refinance-sell timeline should be modeled in advance. If you are considering an aggressive acceleration strategy, compare this article with /learn/bonus-depreciation-str-properties and /learn/cost-segregation-str-tax.
FAQ
Related questions
No. You generally allocate part of the purchase price to land, and land is not depreciable.
Yes. Furniture and appliances are commonly depreciated separately from the building and often over shorter lives.
The fix is usually not as simple as taking a bigger deduction later. You often need an accounting-method correction to catch up properly.