1. The Deduction That Isn't a Bill
Buildings wear out, and the tax code acknowledges it. Each year you deduct a slice of the property's cost, even though no cash leaves your account. A furnished short-term rental runs two slices at once: - **The building:** straight-line over **27.5 years** for residential rental property - **The contents:** typically **5-year** property — furniture, appliances, carpets, window treatments A host collects $52,000 in payouts and pays $20,000 of operating costs. The bank account looks profitable. Now add $18,000 of depreciation, and the return shows a loss. The strategy in one sentence: material participation decides whether that loss can offset your salary.
2. Start With Basis — Because Everything Multiplies From It
Depreciation runs on **basis**: what the property costs for tax purposes, minus the land. - Purchase price, plus the closing costs that belong to the building - **Land is never depreciable.** Allocate using the county property appraiser's land-versus-improvement ratio or an appraisal - Capital improvements add to basis and take their own schedule: the roof, the renovation, the pool resurfacing - Repairs (the fixed AC, the patched drywall) deduct now and never touch basis Example: a $340,000 Orlando purchase with land at $60,000 by the appraiser's ratio leaves a $280,000 building. First full year: about $10,200 of building depreciation. Add $42,000 of furnishings on their own 5-year schedule.
3. The Furnishing Twist: Bonus Depreciation
Here is where STRs beat long-term rentals on paperwork: the 5-year property — furnishings, appliances — qualifies for **bonus depreciation**, permanently restored to 100% for property acquired after January 19, 2025. A host furnishing a unit can deduct the entire furnishing cost in year one. The building itself never qualifies for bonus; 27.5-year straight-line is its lane. But the contents accelerate fully. That asymmetry explains the large first-year loss on a fresh STR purchase: a full building slice, plus 100% of the contents.
4. The Full First Year, Worked
The $340,000 purchase from above, rented from March 1, fully furnished at closing with $42,000 of contents: - Building basis $280,000, placed in service March 1: ten months of the year yields about **$8,500** (depreciation prorates by months in service, not days) - Furnishings $42,000 with 100% bonus: **$42,000** in year one - Total depreciation: roughly **$50,500** Against $52,000 of payouts and $20,000 of operating costs, this host's return shows a loss near $18,500 in year one — arithmetic, not creativity. Year two, the same property produces only the $10,200 building slice, which is why the first year of STR ownership is the year to get the records right. One timing note: "placed in service" means ready and available for rental — not purchased, not listed. The furnished, photographed, calendar-open date starts the clock.
5. Personal Use Prorates Everything
Used the unit yourself — the week your family visited? Depreciation allocates between rental and personal use by days. Rent it 320 nights, use it 30, and 91% of the basis serves the rental. Track the days; the platforms report them, and the proration is arithmetic.
6. Recapture: The Part Everyone Skips
Depreciation is a loan the tax code gives you at purchase and takes back at sale. When you sell, the depreciation gets taxed — "recaptured." The building portion recaptures at up to 25%. Bonus-depreciated furnishings recapture at ordinary rates. The deduction now is real; the bill later is also real. Planning to sell within a few years? Model the recapture before maxing out acceleration on contents. It is deferral, not forgiveness.
7. What We Need to Build It
- Closing statement (price and closing costs) - Land split: appraiser ratio or appraisal - Furnishing and improvement invoices, with dates - Nights rented and nights of personal use - Any prior depreciation if the property has history That file — the same one the Orlando host guide describes — produces the schedule, feeds the loss, and sets up the question that decides everything. Start secure intake, or see how we work with hosts.
8. The STR Guides
This article is part of our short-term rental series: Orlando Airbnb taxes (start here), Schedule E or Schedule C, the seven-day rule, material participation, the host's 1099-K reconciliation, depreciation, and cost segregation.