Qualified Improvement Property (QIP) for Short-Term Rentals: How Renovation Write-Offs Work

If you renovate a short-term rental after it’s already up and running, a big chunk of that spend may count as qualified improvement property (QIP). QIP is 15-year property, which makes it eligible for bonus depreciation so instead of writing off interior work over 39 years, you can often deduct it in the first year.

I see a lot of STR owners skip this entirely, or lump everything into one bucket and get the classification wrong. Here’s how QIP works for STRs, how it fits with cost segregation, and where people trip up.

The 7-Day Rule: Why STR Losses Can Offset W-2 Income

Normally, rental real estate is passive. Passive losses can’t offset your W-2 or other active income — they carry forward until you have passive income or sell. Short-term rentals can be different. If your average guest stay is 7 days or less, the property isn’t treated as a “rental activity” under the passive loss rules. It’s treated like a business.

That means if you materially participate, the losses are non-passive (and non-passive losses can offset your W-2). There are seven tests, but the two most STR owners use are: you spend 500+ hours on the property during the year, or you spend at least 100 hours and more than anyone else, including your cleaners and co-host.

That’s why STRs get so much attention. A long-term rental generally can’t do this unless you qualify as a real estate professional.

Qualified Improvement Property (QIP): What Counts in an STR

QIP is any improvement to the interior of a nonresidential building, placed in service after the building itself was first placed in service. Three things are carved out by law: enlargements, elevators and escalators, and the building’s internal structural framework.

Examples that often qualify:

• Drywall, ceilings, partitions
• Flooring, finishes, paint
• Interior lighting and electrical
• Interior plumbing (not structural)

What doesn’t qualify:

• Enlargements to the building
• Structural framework
• Elevators and escalators
• Exterior work

QIP is 15-year property, which makes it eligible for bonus depreciation. As of 2026, 100% bonus depreciation is permanent for qualifying property acquired and placed in service after January 19, 2025, under the One Big Beautiful Bill Act (OBBBA), signed in July 2025. So instead of spreading interior renovation costs over 39 years, you can often deduct the qualifying portion in year one.

One thing to note: for a renovation, “acquired” generally means when the work started or when you signed a binding contract. A project that kicked off before January 20, 2025 can be stuck with the old phase-down rate even if it wrapped up later.

A $200K Renovation: 39-Year Depreciation vs. QIP

Say you bought an STR for $1M and placed it in service in 2025. In 2026 you spend $200K renovating the interior with new walls, lighting, and flooring.

• Depreciated as 39-year property: about $5K a year.
• Treated as QIP: 15-year property eligible for 100% bonus, so the qualifying portion can come off your 2026 return.

That’s a big difference in how much cash you keep. Plus, timing matters. Renovations done before you first place the property in service are just part of your starting basis. QIP only applies to improvements made after the property is already in service.

Cost Seg at Purchase, QIP at Renovation: How the Two Stack

Think of it as a timeline. When you buy: cost seg breaks down the purchase price so you accelerate depreciation on everything that qualifies for a shorter life. When you renovate: QIP lets you bonus-depreciate qualifying interior work instead of spreading it over 39 years. There’s a third piece people miss. When you rip out flooring or lighting you’re already depreciating, you may be able to write off the remaining value of the old stuff through a partial asset disposition. To do that, you need to know what the old flooring was worth on your books, and a cost seg study at purchase is what gives you that number. It’s also an election you make on a timely filed return for the year you tore it out, so it’s easy to miss if nobody’s tracking it. So don’t run cost seg once and call it done. Every time you put real money into an STR, ask two questions: how much of this is QIP, and what am I tearing out that I can write off?

Common Mistakes Investors Make with QIP

Here are a few places we see investors get tripped up:

• Assuming everything qualifies.Not all improvements are QIP. Exterior work, enlargements, and anything structural (like replacing load-bearing walls) don’t make the cut.
• Mixing in pre-service work.If you renovate before the property is available for rent, that’s just part of your original basis. It’s not QIP.
• Counting furnishings.Furniture, appliances, and décor aren’t QIP. They may still be depreciated over a shorter life in a cost seg study, but they don’t fall under this rule.
• Thinking QIP replaces cost seg.It doesn’t. QIP only applies to post-service interior improvements. Cost seg looks at the whole building at purchase. They complement each other, but they’re not the same.

Getting this wrong can mean leaving money on the table—or worse, misclassifying something and raising audit risk.

Do You Need a Cost Seg Study to Claim QIP?

Maybe. QIP is its own category in the tax code. If you renovate the interior of a nonresidential property after it’s placed in service, you can claim those improvements as 15-year property and, in most cases, bonus-depreciate them.

A CPA can sometimes do this without a full study. But most renovation projects are a mix of costs. Some qualify as QIP. Some are personal property (5- or 7-year). Some are land improvements (15-year). And some are structural (39-year). Without a study—or at least a detailed breakdown—you risk misclassifying costs or defaulting everything to 39 years. That means you either leave money on the table or take a position the IRS could challenge.

So while a cost seg study isn’t required for QIP, it often pays to have one. It’s the best way to make sure every dollar of your renovation spend is captured in the right category.

STR Guardrails: Personal Use, Hotel-Style Services, and Loss Limits

• Material participation is still the gate. Miss the tests from the 7-day rule section and your renovation losses stay passive.
• Hotel-style services change things. If you start offering daily cleaning during stays, meals, or concierge services, your STR can start looking like a hotel business reported on Schedule C — and that can bring self-employment tax with it.
• Watch your own stays. If you use the property personally for more than the greater of 14 days or 10% of the days it’s rented at a fair price, it’s treated as a residence, and your losses get limited.
• There’s a cap on business losses. As of 2026, you can deduct up to $256,000 (single) or $512,000 (married filing jointly) in net business losses against other income each year. Anything above that carries forward as a net operating loss.

Bottom Line

Short-term rentals are already a strong tax strategy for high-income earners who want to offset W-2 income. Add QIP into the mix, and you can accelerate deductions on interior improvements even further. The details matter: nonresidential classification, timing of improvements, and what counts as “interior” vs. “structural.” Get those wrong and you lose the benefit. Get them right and you unlock thousands in tax savings.

Got a renovation coming up or did one in the last few years and not sure how it was classified? Reach out to my team at Maven Cost Segregation. We’ll look at your numbers and tell you whether a study makes sense.