Depreciation Basics for a Short-Term Rental
Depreciation is one of the more reliable deductions a rental property owner has access to, and it's also one of the most misunderstood. In general terms, it lets you deduct a portion of the building's cost over time to account for wear and use — but it doesn't apply to the land underneath it, and it isn't free: what you deduct now generally gets recaptured when you sell. Here's the shape of it, without pretending to be your CPA.
NightYield Editorial
STR-DSCR research & underwriting desk
Published 2026-07-09
What depreciation generally is, in plain terms
Depreciation generally lets an owner deduct a portion of a property's cost basis each year, spread over a set recovery period, as a way of accounting for the building wearing down over its useful life. It's a non-cash deduction — you're not writing a check for it, but it still reduces taxable income the same way a cash expense would.
The building is depreciated; the land it sits on generally is not, since land isn't considered to wear out. That means your basis for depreciation purposes is usually the purchase price allocated to the structure, not the full purchase price — an allocation that's typically informed by a property tax assessment or appraisal, not just guessed.
Why residential rental recovery periods matter for STR
Residential rental property is generally depreciated over a longer recovery period than most commercial property, spreading the deduction out over many years rather than concentrating it. Some owners look at cost segregation studies specifically because that longer, straight-line default period feels slow relative to how quickly components inside the property (appliances, flooring, furnishings) actually wear out — that's a distinct topic worth its own analysis.
- Determine the total cost basis for the property (generally purchase price plus qualifying acquisition costs).
- Allocate that basis between land and building using a reasonable method.
- Apply the applicable recovery period to the building portion, generally on a straight-line basis for typical residential rental.
- Track the deduction each year and keep records — this reduces basis and matters again at sale.
Furniture, appliances, and certain other personal property inside the unit may be depreciated on a different, generally shorter schedule than the building itself, which is part of why STR owners specifically look at cost segregation more than typical long-term-rental owners — furnished units carry more of that shorter-lived personal property.
The other half of the deal: recapture
Depreciation isn't a permanent deduction — it's more accurately a timing benefit. When you eventually sell, the depreciation you claimed generally reduces your basis in the property, which increases your taxable gain, and a portion of that gain attributable to depreciation is generally subject to depreciation recapture treatment, taxed differently than ordinary capital gain. This is standard and expected, not a penalty for doing something wrong — it's simply how the deduction is designed to work over the life of ownership.
Key takeaways
- Depreciation generally lets you deduct a portion of the building's cost over a set recovery period — land is generally excluded.
- Basis allocation between land and building is typically informed by an assessment or appraisal, not guesswork.
- Furnished STR interiors often include shorter-lived personal property, which is part of why cost segregation gets discussed more for STRs.
- Depreciation reduces your basis, which generally increases taxable gain and triggers depreciation recapture at sale.
- This is illustrative and general — a CPA needs to confirm basis, method, and recovery period for your actual property.