Under the General Depreciation System, a rental building generally uses 27.5 years when it meets the definition of residential rental property and 39 years when it is nonresidential real property. For a short-term rental, the answer depends on the dwelling-unit definition, the transient-lodging exclusion, and the source of the building's rental income.
This article assumes the General Depreciation System, or GDS. If the Alternative Depreciation System, or ADS, applies or has been elected, different recovery periods may apply. Confirm the system with your tax professional before using either number.
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.
Keep these two tax questions separate
The building's depreciation period
This determines how its cost is spread over time. The building's classification determines whether the general GDS recovery period is 27.5 or 39 years. This guide walks through that question.
Your ability to use a rental loss
This determines whether a loss can reduce other taxable income. Rental-loss rules and your tax circumstances require a separate review. A building recovery period does not answer this question.
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 excludes a unit in a hotel, motel, inn, or other establishment where more than half of the units are used on a transient basis from the dwelling-unit definition. The establishment and its actual use matter. A short reservation, by itself, does not settle how every vacation rental is classified.
A building with several units
First determine whether the property is an establishment covered by that rule. Then count how its units are used. When the exclusion applies, units in the establishment are excluded from the dwelling-unit definition; do not simply subtract the short-stay units and treat every remaining unit as residential.
A one-unit cabin or house
The income percentage alone does not resolve whether a one-unit cabin or house falls within the transient-establishment exclusion. Give your tax professional the guest records and a description of the operation so they can evaluate the full rule.
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 qualifying dwelling units
Total gross rental income
× 100
A result of 80 percent or more passes the residential rental income test. If the building does not meet the residential rental definition, nonresidential real property generally uses 39 years under GDS.
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.
Building life and rental-loss rules are separate
The building's recovery period does not determine whether you can use a rental loss against wages or other income. Passive activity rules, participation, personal use, and other limits require their own analysis. A conclusion about short guest stays under one set of rules does not automatically answer the building-classification question.
Bring both questions to your CPA. IRS Publication 925 explains passive activity and at-risk limits. Once the classification is established, the residential worth-it guide helps separate the property's additional deductions from the tax reduction an owner may actually use.
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.
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