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Cost segregation case study · Short-term rental

The Kenwood Twin Cabins

4620 Coyote Ridge Rd · placed in service Jan 1, 2026
Purchase + remodel
$1.94M
Depreciable basis
$1.48M
Year-one deduction
$565K
ULV-2026-3B96Engineered review passedView the full study →
The Kenwood Twin Cabins
Why this study reads the way it does

The receipts said $20K of furniture. The photos proved $56K.

A fire took the original home; the owner rebuilt two cabins from the ground up and placed them in service in January 2026 as a short-term rental. The build itself is fully receipt-documented ($1.5M across 147 line items), but the expense sheet captured only $20,558 of furnishings for what is a fully furnished four-bedroom, two-kitchen, gym-equipped compound. Receipts prove payment; they make a poor inventory.

The furnishing scan is the difference

Photo inventory $55,760 · 2.7× the receipts · year one +$32,186
Run without a furnishing pass, this study deducts $533,023 in year one. The scan reads the listing photos room by room (a fixed catalog vocabulary; an item seen in three frames counts once), prices each item at conservative generic-tier replacement value, and books the furniture as its own 5-year pool at 100% bonus: $55,760, lifting the year-one deduction to $565,209. The exterior photos alone held about $17,800 the expense sheet never saw: the hot tub, the outdoor dining and lounge sets.

Nothing is counted twice

Furnishing receipts leave the building basis in lockstep
When the pool is priced, the $20,558 of documented furniture receipts moves out of the building basis (building $1,502,083 to $1,481,525), and hardwired fixtures the photos also see (pendants, chandeliers) are excluded with recorded reasons because the building study already carries them. Every furnishing dollar traces to a photograph and a catalog entry; every building dollar traces to a receipt.
The lesson. Furnishings are the most under-documented dollars in a rental. A study that only counts what the receipts remember understates the furniture; a photographed inventory, priced from a fixed catalog and reconciled against the building basis, recovers the rest defensibly.
Where the cash went

$2.29M in, split into land, building, and remodel

The property was bought for $810,000 and remodeled for $1,481,525, $2,291,525 in all. Land never depreciates, so it's carved out first; everything else becomes depreciable basis the study then accelerates.

Where the $2.29M went

Every dollar in, by where it landed. Land never depreciates; building plus remodel is what the study accelerates.
$2.29Mtotal spend
Land (never depreciates)$453,681 · 20%
Building basis (from purchase)$356,319 · 16%
Remodel (capitalized)$1,481,525 · 65%
Building $356,319 + remodel $1,481,525 = $1,481,525 depreciable basis.
Inside the study

What the engine found

The deterministic engine separated the $1,481,525 depreciable basis into IRS recovery classes, then the engineered review confirmed every component against the source documents.

ULV-2026-3B96
Engineered review passed · 103 components, 4 sources
Depreciable basis$1.48M
Short-life reclass$485K · 33%
Year-one deduction$565K

Component allocation

$1,481,525 depreciable basis across MACRS recovery classes.
$1.48Mbasis
5-year personal property$227,690 · 15%
15-year land improvements$257,271 · 17%
39-year building shell$996,565 · 67%
Relocatable prefab gym stud… $93KArchitectural design: schem… $87KGeneral contractor: supervi… $76KIn-ground pool: shotcrete s… $63KLandscape package: planting… $45KRough framing: sill plates,… $45KAluminum-clad wood windows,… $43KRough framing: sill plates,… $40K

Year one, in dollars

Two deductions stack in the first year.
Current-year depreciation$509,449
§481(a) catch-up (Form 3115)$55,760
Total year-one deduction$565,209
Straight-line without a study~$37,988/yr
About 15× more deduction pulled into year one than straight-line.

Depreciation by year

Year-one spike from bonus depreciation, then the building shell.
Year 1$509,449
Year 2$25,553
Year 3$25,553
Year 4$25,553
Year 5$25,553
Year 6$25,553
Year 7$25,553
Year 8$25,553
Year 9$25,553
Year 10$25,553
Year 11$25,553
Year 12$25,553
Year 13$25,553
Year 14$25,553
Year 15$25,553
Year 16$25,553
Year 17$25,553
Year 18$25,553
Year 19$25,553
Year 20$25,553
Year 21$25,553
Year 22$25,553
Year 23$25,553
Year 24$25,553
Year 25$25,553
Year 26$25,553
Year 27$25,553
Year 28$25,553
Year 29$25,553
Year 30$25,553
Year 31$25,553
Year 32$25,553
Year 33$25,553
Year 34$25,553
Year 35$25,553
Year 36$25,553
Year 37$25,553
Year 38$25,553
Year 39$25,553
Year 40$1,063
Method. Allocations follow the IRS Cost Segregation Audit Techniques Guide, Rev. Proc. 87-56, and MACRS (Pub. 946), with the 100% bonus rate (placed in service 2026) applied to qualifying 5- and 15-year property. The engine produces the figures deterministically; AI is used only to sort and extract from uploaded documents. Every line cleared the engineered review.
State tax treatment

What each state does with this deduction

Each state this study touches, classified by how it treats the federal year-one deduction.

California (CA)Bonus decoupled
State still allows the deduction, but delays part of it.
$509,449
Federal year-one deduction
$82,890
California year-one deduction
$426,559
Added back this year, recovered later

Lifetime difference: $0. Timing only, recovered in later years.

CA defers $426,559 of the deduction in year one, then returns it over the following years, reaching $0 by year 16. The lifetime deduction is the same; only the timing differs.

Deferred in year one Still to be recovered, by year

You still get the federal deduction now. California taxable income is $426,559 higher than federal in year one, but that amount is deducted in later years.

Filing action

Use the federal schedule for the federal return and a California recomputation schedule for the CA return.

Schedule: CA FTB 3885A

Run on Unlevered · engineered review · ULV-2026-3B96
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