The three-tier framework
STR investors have three paths to claim bonus depreciation, with materially different costs and confidence levels:
- $0 — Do nothing. Default to standard 27.5-year straight-line depreciation on the entire structure. No bonus dep claimed.
- $99 — AI-based estimate. A tool like DepreciMax produces a calibrated property report with line-item 5-year and 15-year classification. closely calibrated to a formal study on a benchmark property.
- $5,000–$8,000 — Formal engineering study. An engineering firm visits the property, measures everything, and produces an IRS-defensible report with full audit support.
The question isn't "should I do a cost seg" — for most STR investors, the answer is yes. The question is "which tier."
When the $5k formal study is worth it
Run the formal study when ALL of these are true:
- Purchase price ≥ $400,000
- You're in the 32%+ federal bracket (Single > $192k income, married > $383k)
- Property has reasonable bonus-eligible potential — meaningful finishes and at least 2 outdoor amenities
- You can use the deduction in Year 1 — STR active treatment qualified, sufficient income to absorb the loss
- You expect to hold ≥ 5 years — recapture math is more favorable on longer holds
Example: a $600k Joshua Tree STR with 28% bonus-eligible. Formal study cost: $6,000. Year 1 deduction generated: $168,000. Federal tax savings at 37%: $62,160. Net of study cost: $56,160. ROI: roughly 10:1 in Year 1 alone, plus the standard 27.5-year depreciation on what's left.
When the $99 estimate is enough (skip the formal study)
The $99 tier is enough when ANY of these apply:
- Purchase price ≤ $400,000. The dollar amount of the deduction relative to the $5k study cost no longer produces a clean ROI. A $250k cabin with $50k in bonus-eligible assets generates $18,500 in federal tax savings — a $6k study eats a third of that. The $99 estimate gets you 90%+ of the value at 60x lower cost.
- You're in the 24% or lower bracket. Federal tax savings are smaller per dollar of deduction, so the breakeven property price for the formal study rises to ~$700k.
- The property is a condo. Condos are structurally easy to cost-seg — $0 land, well-defined common-area pro-rata. The $99 AI estimate captures essentially all the value the formal study would.
- You're screening multiple properties before deciding which to buy. The $99 report is designed to be run pre-purchase across 3–10 properties; a $5k formal study only makes sense after you've committed.
When NEITHER pencils out (just take straight-line)
Skip cost seg entirely if:
- Purchase price < $200,000. The 5- and 15-year components on a sub-$200k property are often under $25,000 total. The complexity isn't worth it.
- The property fails the STR active treatment test. If your average stay is > 7 days or you can't materially participate, deductions are passive. They'll carry forward, but you can't use them against W-2 income — which reduces the time-value-of-money case significantly.
- You expect to sell within 2 years. Recapture math favors longer holds. Selling quickly means you give most of the deduction back.
- Your income is below the bonus deduction. If $150k in deductions exceeds your total taxable income, the excess carries forward as a Net Operating Loss — you're shifting tax timing, not capturing new value. The carryforward still has value, but it dilutes the immediate ROI math.
The sequenced approach most STR investors should follow
- Pre-purchase ($99): Run a DepreciMax report on the property BEFORE making an offer. Confirms the bonus-eligible % is high enough to justify the math you're basing your offer on.
- Optional: shop comparable properties ($99 × 3). If you're looking at three similar STRs in the same market, run all three. The data often surfaces a clear winner.
- Post-purchase, decision time: If the DepreciMax estimate shows ≥20% bonus-eligible AND the property is > $400k AND you're in the 32%+ bracket → commission a formal cost seg study. The $5k–$8k spend is justified.
- Post-purchase, smaller properties: If the property is < $400k or the bonus-eligible % is < 18%, the DepreciMax report itself is sufficient defensible support. Use it as documentation for your CPA, file Form 4562, and move on.
The DepreciMax difference: Most cost seg studies happen 6–12 months after closing — too late to affect the purchase decision. DepreciMax is designed to run BEFORE the offer, so you can factor the Year 1 deduction into your purchase price. For a $99 cost and a few minutes of upload time, you get the data you need to make a better buying decision — and a documented estimate that often eliminates the need for a separate $5k study on smaller properties.