Under the standard MACRS rules, a short-term rental building uses a 27.5-year depreciation schedule when at least 80 percent of its gross rental income comes from dwelling units that remain after applying the transient-lodging rule. If it does not meet that test, it uses a 39-year schedule.
A listing on Airbnb or Vrbo does not decide the answer. Follow the checks below, then have your tax professional confirm the classification before filing.
Step 1. Check the current depreciation schedule
Get the depreciation schedule from the most recent return if the property has already been reported
Find the line for the building and note whether it shows 27.5 years or 39 years
That line shows the current treatment, not whether the classification is correct. If it conflicts with the property facts, give the schedule and supporting records to your tax professional. A correction may require an amended return or Form 3115. Review the filing history before making a change.
Step 2. Count the units and record their use
IRS Publication 946 defines a dwelling unit as a house or apartment used to provide living accommodations.
Count the units in the building. A house, condo, or cabin usually has one unit. A duplex usually has two
Record how each unit was used during the tax year
Identify any office, store, restaurant, or other commercial space because its income affects the 80 percent calculation
Step 3. Check the transient-lodging rule
IRS Publication 527 does not treat a unit in a hotel, motel, inn, or similar establishment as a dwelling unit when more than half of the units are used for transient stays.
A building with several units
For a building with several units, count the units used for transient lodging. If more than half are transient, those units do not count as dwelling units.
A one-unit cabin or house
The 80 percent test alone cannot classify a one-unit cabin or house used mainly for short stays. Give your tax professional the guest records so they can decide whether the property is used for transient lodging.
Step 4. Apply the 80 percent rental-income test
IRS Publication 946 applies the residential-rental definition when at least 80 percent of the building's gross rental income comes from dwelling units.
Calculate the percentage
Gross rental income from dwelling units
Total gross rental income
× 100
A result of 80 percent or more passes this test. A result below 80 percent does not, so the building uses the 39-year recovery period.
Check the inputs
Include the fair rental value of any space you occupied
Separate income from commercial space
Ask your tax professional to review personal use or a change in use.
Match your facts to a result
27.5 years when at least 80 percent of gross rental income comes from dwelling units after applying the transient-lodging rule
39 years when the building does not meet that test
Ask for a classification review before selecting a recovery period when any of these facts apply.
One unit used mainly for short guest stays
A combination of transient lodging and long-term rentals
Residential units and commercial space in the same building
A change in use or personal use during the tax year
A current depreciation schedule that conflicts with the property facts
Three examples
A duplex with year-long leases
Both units have year-long residential leases. All income comes from dwelling units, so the duplex uses 27.5 years.
A four-unit inn with transient guests
Three of the inn's four suites are used for transient stays. The inn uses 39 years.
A cabin rented for weekend stays
One cabin is rented for weekend and weekly stays. The 80 percent test alone does not settle its classification. The owner should provide the guest records before selecting a recovery period.
Bring these records to your tax professional
The current depreciation schedule if the property has already been reported
A list of the units and how each unit was used
The reservation calendar with arrival and departure dates
Gross rental income separated by residential and commercial use
Any leases or guest agreements
Records of owner or family use
Ask which units count as dwelling units, whether the transient-lodging rule excludes any units, and whether the building passes the 80 percent test.
What the recovery period changes in a cost segregation study
The 27.5-year or 39-year decision applies to the building and its structural portions, not every asset.
A cost segregation study separately identifies furniture, equipment, land improvements, and other assets that may use shorter recovery periods. IRS Publication 5653 explains the expected documentation.
Either building class can qualify for a study. Confirm the class before using the final depreciation schedule on a return.
Start with a free property estimate to see whether the projected tax benefit supports the cost of a full study.
© 2026 Basis Cost Seg. For informational purposes only and not tax or legal advice. Depreciation treatment depends on the property and the taxpayer. Consult a qualified tax professional regarding your situation.
Further reading
- IRS Publication 946, How To Depreciate Property Federal definitions and recovery periods for residential rental property and nonresidential real property.
- IRS Publication 527, Residential Rental Property Federal guidance for residential rentals, dwelling units, and transient-use distinctions.
- Instructions for Form 3115 Federal instructions for requesting a change in accounting method, including certain depreciation changes.
- IRS Cost Segregation Audit Technique Guide, Publication 5653 IRS examination guidance for asset classification, cost support, and report documentation.
Stock photo source: Pexels