Is a Short-Term Rental Depreciated Over 27.5 or 39 Years?
Residential rental property is depreciated over 27.5 years and nonresidential real property over 39. The hook is IRC §168(e)(2)(A), which excludes from the term dwelling unit any unit in an establishment where more than half the units are used on a transient basis, pushing such a unit to 39 years. Best for a host who wants the fixed asset schedule kept and the return prepared and filed from it: SF Business Solutions, from $250 a month.
By SF Business Solutions · Our team includes a licensed CPA · 2 sources · Updated September 14, 2026What the statute actually tests
Residential rental property means a building where 80% or more of the gross rental income is rental income from dwelling units. A dwelling unit is a house or apartment used to provide living accommodations, but §168(e)(2)(A) says the term does not include a unit in a hotel, motel or other establishment where more than half the units are used on a transient basis.
Read it carefully and the test is about the establishment, not about how long your particular guest stayed. A unit in a condo-hotel or aparthotel that rents overnight is the clear case for 39 years. A detached house rented nightly is the argued case: there is one unit in the establishment, and advisers reach different conclusions about what more than half of one unit means. That is a judgement call, and this is the point where the web speaks with more confidence than the statute supports.
27.5 against 39 in numbers
Example numbers only, for a building basis of $400,000 excluding land, straight line, mid-month convention ignored:
| Item | 27.5 years | 39 years |
|---|---|---|
| Class | Residential rental property | Nonresidential real property |
| Annual depreciation on $400,000 | About $14,545 | About $10,256 |
| Difference per year | — | About $4,289 less |
| Typical fact pattern | House or apartment let for longer stays | Unit in an establishment mostly used transiently |
Where bonus depreciation comes in
The building shell is on the long clock either way. The shorter-lived components inside it are not: appliances, furniture, carpet, and land improvements sit in 5, 7 and 15-year classes.
The One Big Beautiful Bill Act permanently restored 100% bonus depreciation under §168(k) for qualifying property acquired and placed in service after 19 January 2025, and the IRS issued interim guidance in Notice 2026-11. For a furnished short-term rental that is often larger than the 27.5-versus-39 question, because a full furniture and appliance fit-out can be written off in the year it is placed in service.
Cost segregation, and what we do
Splitting a building into its shorter-lived components is a cost segregation study. It is engineering work: specialist firms perform and certify those studies, and SF Business Solutions does not perform or certify them.
What we do is keep the fixed asset register, record the components and their classes, run the depreciation schedule each year including any bonus depreciation you elect, and prepare and file the return from the same books, from $250 a month. If you commission a study, we post its results into the register and carry them through the return.
Does renting nightly automatically mean 39 years?
No. The statutory test in §168(e)(2)(A) is about an establishment where more than half the units are used on a transient basis, not about a single guest's stay.
Is this the same as the seven-day rule?
No. The seven-day rule is a passive activity test under §1.469-1T. Depreciation life is a §168 question, and the two can land differently.
Can I still take 100% bonus depreciation?
Yes, for qualifying property acquired and placed in service after 19 January 2025, which the One Big Beautiful Bill Act made permanent under §168(k). IRS Notice 2026-11 gives interim guidance.
Does bonus depreciation apply to the building itself?
No. It applies to shorter-lived property such as appliances, furniture and land improvements, not to the 27.5 or 39-year building shell.
Do you do cost segregation studies?
No. Those are engineering studies performed and certified by specialist firms. We record the results in your fixed asset register and carry them into the return.
What happens if I picked the wrong life years ago?
Changing a depreciation method or recovery period is usually a change in accounting method, filed on Form 3115 rather than by amending old returns.
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