5-Year vs 15-Year vs 27.5-Year Property for STRs

The financial benefit of a cost segregation study is almost entirely a function of how much of your property can be reclassified from 27.5-year real property into 5-year or 15-year MACRS categories. Here's a detailed breakdown of what goes into each category and what makes the classification decision fact-intensive.

5-Year Personal Property

"Personal property" in the tax sense doesn't mean property you own personally — it means tangible property that is not real property (not land or a structural building component). IRS asset classes 00.11 (furniture) and 00.12 (appliances) are the most common 5-year categories for STRs.

• Freestanding furniture: Beds, sofas, dining tables, chairs, dressers, nightstands, ottomans
• Appliances: Refrigerators, washers, dryers, dishwashers, ovens/ranges, microwaves
• Electronic equipment: Televisions, streaming devices, sound systems, smart speakers
• Decorative items: Art, mirrors, rugs (non-permanently attached), lamps
• Flooring: Carpeting that is tacked down (not glued or cemented) may qualify as personal property
• Certain plumbing and electrical components: Specialized outlets, decorative plumbing fixtures (as distinct from structural plumbing)
• Kitchen equipment: Built-in coffee systems, wine coolers, if classified as personal property by the engineer

15-Year Land Improvements

Land improvements are depreciable structures attached to land but not to the building. They're separate from the building structure and have their own 15-year depreciation life under MACRS.

• Paved surfaces: Driveways, parking pads, walkways
• Landscaping: Planted trees, shrubs, sod (not bare land preparation)
• Fencing: Perimeter fences, privacy screens, decorative fencing
• Outdoor lighting: Pathway lights, landscape lighting, outdoor security lights (when not part of the building electrical system)
• Outdoor amenities: Decks, patios, gazebos, pergolas, outdoor kitchens (when freestanding)
• Pools and hot tubs: Built-in pools and spas attached to the land (not the building) are typically 15-year land improvements
• Retaining walls: Structural walls supporting landscaping or grading

27.5-Year Building Structure

Everything that is permanently attached to and part of the building structure remains 27.5-year property. The key test is whether removal would cause structural damage to the building.

• Foundation, framing, walls, roof
• Structural electrical system (wiring, panels, main service)
• Structural plumbing (main supply lines, drain/waste/vent piping within walls)
• Structural HVAC systems (ductwork embedded in walls, central forced-air units connected to structural systems)
• Windows and doors (as permanent structural components)
• Built-in cabinetry (typically treated as structural in most cost seg analyses)

How Classification Affects Your Deduction

The practical impact of classification is enormous. $100,000 classified as 27.5-year property produces $3,636/year in depreciation. The same $100,000 classified as 5-year property with 100% bonus depreciation produces $100,000 in deductions in year one. The difference is a $96,364 acceleration — worth $35,654 in immediate tax savings at a 37% bracket.