The STR tax terms you need to know.
In plain English.

An IRS-approved engineering study that reclassifies building components into shorter depreciation categories (5, 7, 15 years) to accelerate first-year tax deductions.

A provision that allows short-term rental owners who materially participate to treat depreciation losses as non-passive — deducting them against W-2 or business income.

A tax provision (Section 168(k)) allowing immediate 100% expensing of eligible 5-year and 7-year property in the year placed in service. Made permanent by the OBBBA (2025).

The IRS mechanism that lets rental property owners deduct the cost of their building over time — typically 27.5 years for residential property.

Modified Accelerated Cost Recovery System — the IRS framework defining depreciation periods (5, 7, 15, 27.5 years) for different property types.

The starting value used to calculate depreciation — typically your purchase price minus land value, plus qualifying improvements.

When you sell a rental property, the IRS "recaptures" prior depreciation deductions at a 25% rate. Planning around this is part of any full cost seg strategy.

A separate first-year expensing election for personal property. Overlaps with bonus depreciation but has income limitations — consult your CPA on which applies.

The IRS standard for proving you're actively involved in your rental activity — required to claim STR losses as non-passive. Most active STR owners qualify under the 100-hour test.

A separate IRS designation requiring 750+ hours in real estate activities — more demanding than the STR loophole but applicable to long-term rentals too.

Losses from activities you don't materially participate in. Rental losses are passive by default — suspended until you have passive income or sell the property.

A 3.8% surtax on investment income — including rental income — for high-income taxpayers. Active participation or REPS can reduce or eliminate it.

IRS Change in Accounting Method form — used to claim all missed accelerated depreciation from prior years in a single current-year deduction. No amended returns required.

A tax-deferred property sale — you swap one investment property for another and defer capital gains (and depreciation recapture). Interacts with cost seg strategy on exit.

Qualified Business Income deduction — up to 20% deduction on qualified business income. Made permanent under the OBBBA. May apply to some STR activities.