Bonus Depreciation on a DSCR-Financed Short-Term Rental

The concept, without a specific number attached

Normally, a piece of property with a multi-year useful life is depreciated gradually — a portion of its cost deducted each year over that life. Bonus depreciation allows an eligible taxpayer to deduct a percentage of that cost in the first year instead, for property that qualifies under the relevant tax code provisions. It's frequently paired with cost segregation because a cost seg study is what identifies which components of a building qualify for the shorter schedules that bonus depreciation can then accelerate into year one.

The mechanism has existed in various forms for years, and the applicable percentage has changed multiple times based on legislation — it's been scheduled to phase down over a period of years under rules enacted previously, and could be modified again by future legislation. Because of that volatility, this piece intentionally does not state a specific current-year percentage. Confirm the applicable rate for your purchase year directly with a CPA.

How it interacts with a DSCR-financed purchase — and how it doesn't

Bonus depreciation is a tax-return event, not a loan-qualification event. A DSCR lender computes the ratio from actual or projected rental cash flow divided by PITIA — a purely cash-basis calculation. Depreciation of any kind, bonus or standard, is a non-cash deduction on your tax return that has no bearing on that ratio. You could have zero taxable income after bonus depreciation on a property that still, correctly, shows a healthy 1.3 DSCR to the lender, because those are two different calculations answering two different questions.

Where the two do connect practically: bonus depreciation's tax savings can improve your overall cash position, which can help fund the down payment or reserves for your next DSCR-financed acquisition — an indirect link through your personal cash flow, not through the loan's underwriting itself.

What to actually do with this on a real STR purchase

Treat bonus depreciation as a genuine after-tax return enhancer on a property that already clears DSCR — not as a factor in the buy decision itself. The order of operations should be: does the property cash-flow and clear the lender's DSCR floor, then separately, what does a cost segregation study plus bonus depreciation do for the tax picture.

• Confirm the current-year bonus depreciation percentage with a CPA before modeling any tax benefit — do not use a prior year's rate.
• Understand that bonus depreciation, like standard depreciation, is subject to depreciation recapture on sale — model the eventual exit with this in mind, not just the acquisition year.
• Don't let a projected tax benefit talk you into a property whose DSCR is marginal — the cash-flow math has to work independent of the tax strategy.
• Coordinate the cost segregation study and bonus depreciation election with the same CPA in the same tax year for consistency.