Cost Segregation Study in Idaho for Airbnb and Short-Term Rental Investors

Idaho is a decoupled state when it comes to federal bonus depreciation under IRC Section 168(k) — and in that respect it's in good company: independent trackers of state conformity show that only a minority of states fully conform to federal bonus depreciation without modification, while a clear majority, including Idaho, decouple or modify Section 168(k) in some way. In February 2026, Governor Brad Little signed House Bill 559, which updated Idaho's general conformity to the Internal Revenue Code to January 1, 2026 (applied retroactively to January 1, 2025) and brought Idaho into line with most provisions of the federal One Big Beautiful Bill Act (OBBBA) — but the legislation specifically carved out Section 168(k) bonus depreciation, meaning Idaho remains decoupled from it. For most taxpayers, this means a taxpayer who claims federal bonus depreciation on an Idaho rental property must add back the bonus amount on their Idaho return and recompute Idaho depreciation as if the bonus allowance had never been claimed, using the standard MACRS schedule instead. Idaho Code Section 63-3022O contains an additional wrinkle worth flagging: if your federal bonus depreciation can't currently be used because it's suspended by the federal passive-activity-loss, at-risk, or partner/shareholder basis limitation rules — a situation that can arise for buy-and-hold owners who aren't real-estate professionals and haven't established material participation in a short-term rental — the Idaho addback itself may be deferred and triggered later, only as those suspended federal losses are eventually freed up and used, rather than being added back and recovered on the standard MACRS schedule right away. Which mechanism applies depends on your specific facts, so this is a point to work through with your CPA. Because House Bill 559 is so recently enacted, the Idaho State Tax Commission has also been issuing rounds of implementation guidance since it was signed, so it's worth confirming the current guidance before filing rather than relying solely on the statute.

The upside is that, for taxpayers on the standard recompute mechanism, this addback isn't a permanent loss of the deduction — it's a timing difference. Because Idaho depreciation is computed on the pre-bonus basis, the property continues generating standard depreciation deductions (and corresponding Idaho subtractions) in later years that federal filers, who front-loaded everything into year one, no longer have. A cost segregation study is what makes this worthwhile in the first place: by reclassifying components of the building into 5-, 7-, and 15-year MACRS lives, the study still produces materially larger federal-side deductions in the early years from bonus depreciation, while Idaho depreciation on those same reclassified components proceeds on its own accelerated (though non-bonus) shorter-life schedule — still faster than depreciating the entire structure over 27.5 or 39 years.

Idaho also has a reputation for low property taxes, with a statewide average effective rate often cited around 0.49% to 0.50% of assessed value. That figure, however, reflects owner-occupied homes benefiting from Idaho's Homeowner's Exemption, which shields 50% of a primary residence's assessed value (up to a statutory cap) from taxation. Non-owner-occupied short-term-rental and long-term-rental investment properties don't qualify for that exemption and are taxed on their full assessed value, so investors in Sun Valley, McCall, Coeur d'Alene, and Boise should expect a meaningfully higher effective carrying cost than the headline owner-occupied figure — your county assessor's office can give you the rate that actually applies to a non-owner-occupied rental.

Absent a cost segregation study, the IRS default is to depreciate an entire residential rental building on a straight line over 27.5 years, or a commercial building over 39 years. A cost segregation study is an engineering-based analysis that walks through the building's components — flooring, cabinetry, decorative and non-structural finishes, specialty electrical and plumbing, appliances, furniture, exterior improvements such as decks, patios, fencing, and landscaping — and reassigns each one to its correct, shorter IRS recovery class, typically 5, 7, or 15 years, based on established engineering and cost-accounting standards. On the federal return, the One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, permanently restored 100% first-year bonus depreciation for qualifying property acquired after January 19, 2025, meaning everything the study assigns to those shorter classes can typically be deducted in full in the year the property is placed in service, rather than trickling out over decades.

For illustration only — your results depend on your property and tax situation, and this is not a projection of actual savings.

Suppose an investor purchases a $700,000 short-term rental cabin near McCall for winter and summer tourism, with roughly $560,000 allocated to the depreciable structure after excluding land value. A cost segregation study might reclassify approximately 25% of that basis, or about $140,000, into 5-, 7-, and 15-year property such as furnishings, decking, outdoor living space, and specialty finishes. On the federal return, that $140,000 could potentially be deducted in year one under 100% bonus depreciation. For Idaho purposes, that same $140,000 would typically need to be added back and instead depreciated on its ordinary (non-bonus) MACRS schedule across its 5-, 7-, or 15-year class life — unless the investor's federal losses are themselves suspended under the passive-activity, at-risk, or basis limitation rules, in which case the Idaho addback timing can differ. Either way, this is still notably faster than spreading the full $560,000 over 27.5 years. Again, these are round, illustrative numbers only, not a promised outcome.

If you've owned your Idaho rental for a year or more and never had a cost segregation study performed, you have not missed the opportunity. A look-back study lets you catch up on the depreciation you should have claimed, without having to amend any prior-year tax returns. This is done by filing IRS Form 3115, Application for Change in Accounting Method, together with a Section 481(a) adjustment, which allows the entire cumulative difference between what you claimed and what you were entitled to claim to be recognized as a single deduction in the current tax year. The same Idaho-specific mechanics apply on the state return: the federal portion attributable to bonus depreciation would generally need to be added back and recomputed on the standard MACRS schedule for Idaho purposes, though the timing can differ if your federal losses are suspended under the passive-activity, at-risk, or basis rules, so it's worth coordinating the look-back with a CPA familiar with Idaho's conformity rules and current Idaho State Tax Commission guidance.

• Short-term rental and Airbnb hosts in Idaho's established vacation markets, including Sun Valley and Ketchum, McCall, Coeur d'Alene, Tamarack, and Boise
• Long-term rental property owners with single-family homes, duplexes, or small multifamily buildings anywhere in the state
• Recent buyers or renovators who purchased or substantially improved a rental property within the last year and haven't yet claimed depreciation
• High-income owners layering in the short-term rental material participation strategy, where an average guest stay of seven days or fewer, combined with material participation in the activity, can allow losses — including those generated by cost segregation — to offset active W-2 or business income rather than being trapped as passive losses
• Owners preparing to sell, who want to model any depreciation recapture exposure before listing a property