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

Ohio is a state-income-tax state, but its treatment of IRC Section 168(k) bonus depreciation is neither full conformity nor a flat refusal — it's a mandatory deferral. Under Ohio Revised Code 5747.01(A)(17)(a), individual and pass-through taxpayers who claim bonus depreciation (or the enhanced portion of a Section 179 election) on their federal return must add back five-sixths of that amount when computing Ohio adjusted gross income. ORC 5747.01(A)(18)(a) then lets the taxpayer recover the added-back amount gradually, subtracting one-fifth of it in each of the five succeeding tax years. In practice, a rental owner who takes a large first-year federal bonus depreciation deduction from a cost segregation study still gets the full federal benefit up front, but the matching Ohio state-tax benefit is smoothed out over roughly six years instead of landing all at once.

Legislation to change this has been introduced. House Bill 69, pending before the Ohio House Ways and Means Committee during the 136th General Assembly, would eliminate the five-sixths addback and let Ohio taxpayers deduct bonus depreciation in the same year as their federal return. The bill received sponsor testimony before the committee in March 2025; as of its most recently recorded legislative action, it had not advanced further and had not been enacted, so the current addback-and-recover mechanism under 5747.01 still governs Ohio filings — investors should plan around today's law and confirm the bill's status with a CPA or the legislature's own tracker before assuming any change.

None of this changes the arithmetic on the federal return, where the deduction still matters most, and Ohio's flat 2.75% rate on income above $26,050 for 2026 is relatively modest next to graduated-bracket states, which limits how much the addback timing affects the total tax bill. Property taxes are a bigger year-to-year cost for most Ohio rental owners: effective rates run roughly 1.2%–1.4% of assessed home value statewide depending on the tracker (Tax Foundation's Facts & Figures 2026 reports about 1.36%), noticeably above a national average commonly cited around 0.9%–1.1%. Cuyahoga County stands out even within Ohio, with a county-wide average effective rate near 2.08% and some individual parcels taxed well above 2%. Cost segregation doesn't touch the property tax bill directly, but by freeing up cash through faster federal — and eventually state — depreciation, it gives owners more room to absorb Ohio's above-average carrying costs.

Left alone, the IRS default is simple: a residential rental building depreciates on a straight line over 27.5 years, and a commercial building over 39 years, with the entire purchase price (minus land) moving at that same slow pace regardless of what's actually inside the building. A cost segregation study is an engineering-based analysis that walks through the property, invoices, and construction records to identify which components qualify for much shorter federal recovery periods — typically 5, 7, or 15 years — under long-standing IRS component-depreciation rules. Flooring, certain electrical and plumbing sub-systems tied to specific appliances, decorative finishes, cabinetry, and site improvements like parking areas, landscaping, and fencing are common candidates for reclassification.

Once those components are identified and their costs are separated out, they become eligible for bonus depreciation under IRC Section 168(k). 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 a rental owner who closes on or substantially renovates a property after that date can potentially deduct the full cost of the reclassified components in the very first year, rather than waiting decades under straight-line depreciation. That January 19, 2025 line is drawn at the acquisition date — generally the date of a binding written contract — not simply the closing or placed-in-service date; a property under contract on or before January 19, 2025 but placed in service later can still fall under the pre-OBBBA phase-down schedule (40% bonus for 2025, 20% for 2026, 0% after), so owners should confirm their specific acquisition date with a CPA before assuming the full 100% rate applies.

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

Consider an investor who signs a purchase contract for and closes on a $500,000 short-term rental cabin near Hocking Hills after January 19, 2025, allocating roughly $400,000 to the building and $100,000 to land. Because both the acquisition and the placed-in-service date fall after that threshold, the reclassified components are eligible for the full 100% federal rate; a property under contract on or before January 19, 2025 but placed in service later would instead fall under the pre-OBBBA phase-down. A cost segregation study might reclassify around $110,000 of that building basis — items like flooring, cabinetry, deck and outdoor living components, and site work — into 5-, 7-, and 15-year property, all potentially eligible for 100% bonus depreciation in year one.

On the Ohio return, that same $110,000 first runs through the state's addback mechanism: five-sixths of it, or about $91,700, gets added back to Ohio adjusted gross income in year one, then recovered at roughly $18,300 per year (one-fifth of the added-back amount) in each of the following five years. The federal cash benefit shows up immediately; the Ohio benefit arrives on a slower, predictable schedule. A CPA can model both sides together to see the actual year-by-year impact for a specific property.

Missed the window to run a cost segregation study when you first bought or renovated an Ohio rental? You don't need to amend a return to fix that. A look-back study applies the same engineering analysis retroactively to a property already placed in service, and the resulting catch-up depreciation is claimed by filing IRS Form 3115, Application for Change in Accounting Method, along with a Section 481(a) adjustment. That adjustment lets an owner claim the depreciation that should have been taken in prior years as a single deduction on the current-year return — no amended federal or Ohio returns required. For an owner who has held a Columbus duplex or a Lake Erie cottage for several years without a cost segregation study, a look-back can often unlock a meaningful one-time deduction this year.

• Short-term rental and Airbnb hosts in Ohio's established vacation markets, including Hocking Hills cabins around Logan and Nelsonville, Lake Erie shoreline and island properties near Put-in-Bay, Port Clinton, and Ashtabula, and urban stays in Columbus and Cleveland
• Long-term rental property owners with single-family homes, duplexes, or small multifamily buildings anywhere in Ohio
• Recent buyers or renovators, since cost segregation delivers the largest first-year benefit when paired with a purchase, new construction, or a substantial remodel
• High-income W-2 earners or business owners exploring the short-term rental material participation strategy, which can allow STR losses to offset active income when the average guest stay is seven days or less and material participation tests are met
• Owners nearing a sale, who should coordinate timing with a CPA since accelerated depreciation affects depreciation recapture at disposition