Cost Segregation for STR Condos: Can You Do a Study on a Condo?
Vacation condos represent a unique cost segregation opportunity — and a unique constraint. Unlike a standalone cabin or beach house, a condo unit owner cannot depreciate the building structure (owned by the HOA) or common areas. However, the interior of your unit — all personal property, fixtures, and improvements — is fully eligible for cost segregation and bonus depreciation.
What Does the Condo Owner Actually Own?
In a condominium, you own your unit from 'drywall in' (or sometimes 'floor slab to ceiling slab,' depending on the condo docs). This means your depreciable basis includes:
- Interior walls, flooring, ceiling finishes within your unit
- Kitchen and bathroom fixtures, cabinetry, and countertops
- Appliances (washer/dryer, dishwasher, refrigerator)
- HVAC units serving your unit exclusively
- Electrical and plumbing fixtures within the unit
- All furniture, window treatments, and personal property
- Any capital improvements you made (kitchen remodel, bathroom upgrade)
Building shell, structural elements, common corridors, lobby, pool (if HOA-owned), elevators, and roof are not depreciable by unit owners. These are included in your purchase price but belong to the HOA. Accurate basis segregation is critical.
Typical Reclassification Rates for STR Condos
Because condo buyers pay for common areas and building shell they can't depreciate, the effective reclassification rate within the depreciable basis can actually be higher than for standalone properties. A furnished STR condo may have 40–55% of its depreciable basis in 5-year personal property (furniture, appliances, electronics) — higher than most standalone homes.
| Purchase Price | Est. Depreciable Basis | Est. 5/7-yr Property | Est. Year-1 Deduction |
|---|---|---|---|
| $300,000 | ~$180,000 | ~$80,000 | ~$80,000 (at 100% bonus) |
| $500,000 | ~$300,000 | ~$130,000 | ~$130,000 |
| $750,000 | ~$450,000 | ~$190,000 | ~$190,000 |
| $1,000,000 | ~$600,000 | ~$250,000 | ~$250,000 |
Review HOA Documents Before Your Study
Before commissioning a cost segregation study, review your HOA's CC&Rs and unit boundary definitions. Some HOAs define unit boundaries differently than others — some include HVAC, some don't. Your cost segregation study should reflect your actual ownership boundaries, not a generic assumption.
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