Cost Segregation, Explained for Tybee & Savannah Buyers

If you buy a rental or vacation home, the IRS lets you deduct the cost of the building a little at a time, over many years. Cost segregation is a way to deduct a big chunk of it right away instead. That can mean a much smaller tax bill in your first year or two of owning the property.

We're real estate agents, not tax advisors. This post covers the basics, using information from US Tax Advisors Group (USTAGI), a firm that specializes in this, so you know what to ask your CPA.

First, what is "depreciation"?

When you own a rental, the IRS assumes the building slowly wears out. So each year, you get to deduct a slice of what you paid for it. That yearly deduction is called depreciation.

The catch is that the slices are small. A rental home is spread out over 27.5 years. A commercial building is spread over 39 years. (Land doesn't count, since land doesn't wear out.)

So what does cost segregation do?

A building isn't just one big thing. It's made up of lots of parts, and many of them wear out much faster than the walls and roof.

A cost segregation study is when specialists go through your property and identify those faster-wearing parts, like:

• Flooring, cabinets and appliances
• Certain wiring and plumbing
• Landscaping, driveways and outdoor lighting

Those parts can be deducted over 5, 7 or 15 years instead of 27.5. And thanks to a 2025 tax law change, they can often be deducted all in the first year.

A simple example

Say you buy a Tybee rental, and the building itself (not the land) is worth $400,000.

• Without a study: you'd deduct roughly $14,500 a year, every year, for 27.5 years.
• With a study: if 30% of the building ($120,000) is identified as faster-wearing parts, you could deduct that $120,000 in year one, plus the regular yearly amount on the rest.

This is a simplified illustration, not a promise. Your actual numbers depend on the property and your tax situation.

What changed in 2025

According to USTAGI, a federal law signed in July 2025 (the One Big Beautiful Bill) brought back something called 100% bonus depreciation. In plain terms, it means those faster-wearing parts can be fully deducted in the first year.

Before this law, that first-year write-off was shrinking every year:

• 2024: 60%
• 2025: 40% (now 100% for property bought after Jan. 19)
• 2026: 20% (now 100%)
• 2027 and later: 0% (now 100%)

Why it's worth knowing about

More cash in your pocket early. A lower tax bill in year one can help pay for furnishing a rental, building savings, or buying your next property.

Write-offs when you replace things. If you later replace something like the flooring, you can often deduct what was left of the old flooring's value.

It's not just for big buildings. Single-family rentals, small multifamily and vacation homes can all qualify.

Is it a good fit for you?

USTAGI says it usually makes the most sense if you:

• Pay income tax and would benefit from bigger deductions
• Are buying a property where the building (not the land) is worth about $100,000 or more
• Have done, or plan to do, $50,000 or more in renovations
• Plan to keep the property for at least 3 to 5 years

Vacation rentals: why your involvement matters

Here's the part that matters most on Tybee. How much these deductions help depends on how hands-on you are.

• Hands-off owners (for example, using a full-service property manager) can usually only use the deductions against other rental income. Anything left over carries forward to future years.
• Hands-on owners who spend enough time running the rental may be able to use the deductions against their regular income, like a paycheck. That's where the bigger savings can come from.

The short-term rental angle. USTAGI explains that if your average guest stays 7 days or less, and you're personally involved in running it (answering guests, scheduling cleaners, handling repairs, setting prices), you may be able to use these deductions against your other income.

If that's your plan, track your hours carefully. And since Tybee Island has its own short-term rental rules, check the city's current requirements before you buy.

Quick answers to common questions

What does a study cost? It depends on the property. USTAGI says studies for smaller properties start under $1,000.

How long does it take? Usually 4 to 6 weeks.

When should I do it? Ideally the same year you buy, build or renovate. Already own a rental? You can often still do one and catch up on deductions you missed.

Can I do it myself? No. The IRS expects it to be done by qualified specialists.

Is there a catch when I sell? Some of the deductions you took get taxed when you sell (this is called "depreciation recapture"). For owners who hold 3 to 5 years or more, USTAGI says the early savings usually outweigh that later tax.

How much of a rental home usually qualifies? USTAGI estimates 20% to 40% of the building's value often qualifies for faster deductions.

Your next steps

1. Talk to your CPA about whether this fits your situation.
2. Request a quote from US Tax Advisors Group. They do cost segregation studies in all 50 states, for homes and commercial properties.
   • Phone: 619-304-6216
   • Email: info@ustagi.com
   • Website: ustagi.com
3. Find the right property with The Bacon Team. We help buyers find investment and vacation rental properties on Tybee Island and across greater Savannah, and we're happy to share what we know about the local rental market.
   • Phone: 912-272-3778
   • Email: sara@baconteamre.com
   • Website: www.thebaconteamre.com

Disclaimer

This post is for general education only and is not tax, legal or financial advice. The Bacon Team and Keller Williams Realty Coastal Area Partners are not tax professionals. Tax laws change and every situation is different, so talk to a qualified CPA or tax advisor before making decisions. Information summarized from "A Real Estate Investor's Guide to Cost Segregation" by US Tax Advisors Group (September 2025).