Case Study 4: Airbnb Short-Term Rental – Real Estate Investor

Client Profile:

Name Michael Jackson
Occupation Real Estate Investor
Annual Income $600,000
Property Short-term rental (Airbnb) property
Property Purchase Price: $850,000
Location Resort Area, 2023
Primary Goal Offset rental income and reduce tax liability

Scenario:

Michael purchased a luxury vacation rental in a resort area, valued at $850,000, and rents it out through Airbnb. He’s trying to reduce the taxable income generated by his rental properties.

Cost Segregation Benefits:

After a detailed cost segregation study, we identified that a significant portion of the property could be depreciated in a shorter time frame:

  • Personal Property (Furnishings, Appliances, etc.):
    $100,000
  • Land Improvements (Driveways, Landscaping, etc.):
    $50,000
  • Building (Structural components):
    $700,000

This will allow Michael to take advantage of accelerated depreciation.

Tax Savings Calculation

Accelerated Depreciation:

  • Personal Property:
    $100,000 / 5 years = $20,000 per year
  • Land Improvements:
    $50,000 / 15 years = $3,333 per year
  • Total Depreciation Deduction in Year 1:
    $23,333

Tax Benefit:

At a 35% tax rate, Michael will save $8,166 in the first year by utilizing cost segregation.

Conclusion:

For a short-term rental property, cost segregation provides a great opportunity to offset rental income and reduce taxable income. By accelerating depreciation on personal property and land improvements, Michael can increase his cash flow and use the tax savings to reinvest in additional rental properties.

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