A furnished short-term rental often arrives as a single transaction: one contract price for the land, home, and contents. Federal depreciation does not treat all of those costs alike. Land is not depreciable. The building follows the recovery period appropriate to its use. Furniture, appliances, and certain other assets may have shorter periods. Separating the costs accurately is the foundation of a defensible STR depreciation schedule.

The temptation is to assign a generous value to the furnishings because shorter-lived assets may generate deductions sooner. An unsupported allocation can cause problems for both buyer and seller and can be difficult to defend later. The better approach is to inventory the assets, support their values, reconcile the allocation to the actual purchase price, and preserve the evidence for the life of the property.

What exactly did you buy?

Read the purchase agreement and its attachments. Does it say the furnishings are included? Is there an inventory? Are linens, kitchenware, televisions, outdoor furniture, a hot tub, or maintenance equipment transferred? Are any items leased, financed separately, excluded, or owned by a property manager? A photo of a room is useful, but it may not tell you who owns every object in it.

At closing, obtain a signed inventory where practical. Note the item, location, approximate age and condition, and whether it is part of the sale. Save the listing photographs, walkthrough video, inspection report, and seller disclosures. If the seller removes or replaces items before closing, update the inventory. The allocation should describe what actually transferred, not what appeared in marketing images months earlier.

This step is especially valuable when the property is sold as a turnkey STR. The value of an operating rental business or booking history may be part of the negotiation, but it should not casually be buried in furniture or building basis. Any intangible or going-concern value requires separate analysis. Ask a tax advisor to review unusual deal terms before finalizing the purchase allocation.

Allocate the price to land first

Land does not qualify for depreciation. A coastal or mountain vacation home’s land component can be significant. The appropriate allocation should reflect the property’s actual value, not a fixed rule of thumb. An appraisal, local market data, assessed values, and the property’s physical characteristics may help support it. None of those sources should be used mechanically without considering the transaction.

Suppose you pay $900,000 for a furnished property. If a supportable allocation assigns $225,000 to land and $25,000 to the contents, the remaining purchase price may be assigned among building and other acquired depreciable assets after accounting for closing costs and any additional items. Claiming depreciation on the full $900,000 would be wrong because land is included. Claiming $100,000 for used furniture merely to increase deductions would need credible valuation support.

The allocation should reconcile to the final settlement statement. Certain closing costs can increase basis and may need to be allocated among acquired property. Financing costs can have different treatment. Make sure the asset schedule reflects the completed transaction rather than only the number on the first page of the purchase contract.

Value used furnishings based on what was acquired

The original retail price of a sofa is not necessarily its value when transferred with a used STR. Condition, age, quality, and local resale market matter. A seller’s inventory can be helpful if it lists original costs and purchase dates, but the buyer should assess whether those amounts reflect the acquired assets’ current value. A room-by-room inventory makes the analysis more transparent.

For high-value items, preserve individual support. That might include seller invoices, independent valuation, model numbers, and photographs. For lower-value items, a reasonable grouped method may be practical, provided it is documented and reconciled. Avoid assigning one unexplained percentage of the home price to “contents.”

Also distinguish included property from items you buy after closing. New beds, televisions, or kitchen equipment purchased later have their own invoices, acquisition dates, and placed-in-service dates. They should not be counted in both the purchase allocation and later asset ledger. A cost segregation study should identify that boundary clearly.

Identify the building and other improvements

The home itself contains multiple types of assets. Structural components generally remain part of the building, while some identifiable property or land improvements may have different tax classifications. A cost segregation study can help allocate a bundled purchase price among these categories using property-specific evidence and a documented method. The IRS Cost Segregation Audit Techniques Guide describes what examiners look for in a study.

Outside features often require special attention in an STR. Fencing, paths, parking areas, landscaping, outdoor lighting, and recreation amenities may involve different kinds of property. A single line item called “outdoor improvements” is rarely enough for an accurate schedule. The study should identify and value relevant components while ensuring that nondepreciable land is not swept into an improvement category.

The building’s recovery period also depends on tax classification. Do not assume that the use of an online booking platform settles whether the building is residential rental property for depreciation purposes. The property’s actual operation and services should be reviewed with the return preparer.

When does depreciation begin?

Depreciation generally begins when the asset is placed in service: ready and available for its intended income-producing use. If a furnished home is guest-ready immediately after closing, that date may be close to the purchase date. If the owner spends two months replacing furniture and completing construction, the home may not yet be ready to rent. A separately purchased hot tub may become available later than the house.

IRS Publication 946 describes the placed-in-service rule. Publication 527 explains rental-property depreciation and the need to separate land from building. Save evidence of opening readiness, such as completed inspections, listing dates, insurance, photographs, and calendars available for booking. The first reservation is relevant evidence but is not always the controlling date.

If the owner uses the property personally before opening, the change from personal to income-producing use can add another basis question. The tax basis for depreciation on a conversion can differ from the owner’s cost. A tax advisor should review the property’s history instead of assuming the purchase allocation alone resolves the issue.

Bonus depreciation needs an asset-by-asset review

Short-lived assets identified in a furnished purchase may be eligible for bonus depreciation, but the purchase is not automatically a 100% write-off. Eligibility depends on asset type, acquisition date, prior use rules, related-party rules, placed-in-service date, and elections. The IRS has issued guidance on permanent 100% additional first-year depreciation for qualified property acquired after January 19, 2025.

Used property can qualify in some circumstances, but “used” alone is not enough to decide. The preparer must test the applicable conditions. Land and the building do not become bonus-eligible because the transaction includes furniture. The buyer also needs to know whether the accelerated deduction can actually be used under passive activity, basis, at-risk, and personal-use rules.

A practical closing-to-filing workflow

Before closing: request an inventory of included contents and review the contract allocation. Photograph the property and identify any items the seller will remove.

At closing: save the final settlement statement, appraisal, and all basis-related invoices. Confirm the inventory matches what transferred.

Before opening: record replacements and additions separately. Keep invoices, payment records, and delivery dates. Note when the home and each significant asset became ready to rent.

Before filing: reconcile land, building, contents, and later purchases to the total basis. Review any cost segregation report against the separate furniture ledger. Confirm that no cost is duplicated.

After filing: retain the allocation and asset schedule. They will matter again for future depreciation, casualty events, replacement of furnishings, and sale reporting.

Frequently asked questions

Can the buyer and seller simply agree on a furniture value?

They can negotiate an allocation, but it should reflect the economic facts and be supportable. The parties may have different tax incentives. A signed number that is clearly out of line with the assets’ value can invite scrutiny.

Is every furnishing a separate fixed asset?

Not always for bookkeeping or tax reporting. Similar items may be grouped appropriately, and some low-cost items may be treated under applicable expensing rules. Keep enough detail to identify what was bought, its cost, and when it entered service.

Do I need cost segregation if the seller gives me a furniture list?

A list helps value the included contents. A study may still be worthwhile to allocate the building purchase price among structural property, other eligible property, and land improvements. The decision depends on basis, likely acceleration, and whether the resulting loss is useful.

A supportable allocation pays off for years

Buying a furnished STR creates an immediate recordkeeping task. A clear allocation prevents double counting, supports depreciation, and makes a later sale easier to report. AE Tax Advisors can help owners connect a property inventory and STR cost segregation analysis to a complete tax plan, including the rules that determine whether accelerated deductions can be used.

For help reviewing a furnished purchase, visit www.aetaxadvisors.com and request a tax assessment.

Related AE Tax Advisors guides: What Does an STR Cost Segregation Study Actually Reclassify?; Can STR Cost Segregation Losses Offset W-2 Income?.

Sources: IRS Publication 527; IRS Publication 946; IRS Cost Segregation Audit Techniques Guide; IRS bonus depreciation guidance.