Depreciation for Short Term Rental Properties: How It Differs from Long Term Rentals (2024)

Depreciation is a tax deduction that allows you to recover the cost of an asset over its useful life. For short-term rental properties, the depreciable life is 39 years. This is longer than the depreciable life of 27.5 years for long-term rental properties.

The reason for this difference is because short term rentals are used on a transient basis, and therefore more akin to commercial property (like a hotel) rather than residential property, where the tenant typically signs an annual lease and stays for multiple years.

If you own a short-term rental property, it is important to understand the depreciation rules that apply to it. This will help you to maximize your tax deductions and minimize your tax liability.

Here are some additional details about how depreciation for short-term rental properties differs from long-term rental properties:

• Depreciation basis: The depreciation basis for a short-term rental property is the cost of the property, including closing costs, plus the cost of any improvements that you make to it, minus an allocation for land, which is non-depreciable.
• Depreciation method: By default, the depreciation method for short-term rental properties is the straight-line method. This method allows you to deduct an equal amount of the cost of the property each year over its depreciable life. However, you can use a cost segregation study to break the property into different class lives and claim more depreciation up front.
• Depreciation limits: There are some limits on the amount of depreciation that you can deduct for a short-term rental property. These limits are based on the number of days that the property is rented out each year. If you rent the property out year round without using it personally, you should not have a significant limitation on the depreciation.

If you have any questions about depreciation for short-term rental properties, you should consult with a tax professional.

Here are some additional tips for maximizing your depreciation deductions for short-term rental properties:

• Keep good records: It is important to keep good records of all costs associated with your short-term rental property. This includes the cost of the property, the cost of any improvements that you make to it, and the cost of operating the property.
• Use a tax software program: There are a number of tax software programs that can help you to track your expenses and calculate your depreciation deductions.
• Consider hiring a tax professional: If you're not comfortable with the depreciation rules for short-term rental properties, you may want to consider hiring a tax professional to help you.

By following these tips, you can maximize your depreciation deductions and minimize your tax liability.

Have you been depreciating your short term rentals over 39 years?