5-Year, 15-Year, and 27.5-Year Property: What Goes in Each Category for an STR?
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)
Many items sit on the line between categories: built-in appliances, specialty electrical systems, decorative but permanently attached fixtures. This is where engineering expertise matters — a qualified cost seg professional knows how courts and the IRS treat these items and documents the classification accordingly.
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.
Find Out How Much of Your Property Is 5-Year and 15-Year
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