# Dunewren House financial assumptions

Dunewren House is a fictional oceanfront short-term rental inspired by Atlantic City shore architecture. Four bedrooms and four bathrooms occupy two living floors above open parking and storage. The top floor contains the principal living space. The property has no pool.

The total investment is $1,400,000, including $500,000 allocated to land and $900,000 of depreciable basis. This is an illustrative allocation, not a quotation, appraisal, comparable sale or result of an engineering study.

## Timing and method

Acquisition is February 12, 2026 and the property is ready for rental use on May 15, 2026.
This scenario assumes full business use, no personal occupancy and transient use supporting the specified 39-year nonresidential building classification.
A seven-day average stay alone does not decide the building recovery period; the transient-establishment assumption must be independently supported for an actual property.
All short-life assets are assumed eligible for 100 percent bonus depreciation under the post-January 19, 2025 acquisition rules, with no ADS requirement or disqualifying related-party transaction.
Without bonus, the comparison uses half-year GDS rates of 20 percent for 5-year property and 5 percent for 15-year property; the building uses straight-line depreciation and the mid-month convention.

## Allocation

| Component | Recovery period | Basis |
|---|---|---:|
| Crushed-shell driveway | 15-year | $18,000 |
| Pilings and parking level | 39-year building | $80,000 |
| Bedroom-level flooring | 39-year building | $30,000 |
| Bedroom-level walls | 39-year building | $188,000 |
| Three bedroom bathrooms | 39-year building | $30,000 |
| Primary bedroom furniture | 5-year | $14,000 |
| Twin bedroom furniture | 5-year | $8,000 |
| Guest bedroom furniture | 5-year | $9,000 |
| Stairs and landings | 39-year building | $22,000 |
| Residential elevator | 39-year building | $32,000 |
| Living-level flooring | 39-year building | $30,000 |
| Living-level walls | 39-year building | $183,000 |
| Upstairs bathroom | 39-year building | $13,000 |
| Upstairs bedroom furniture | 5-year | $10,000 |
| Kitchen and built-in seating | 39-year building | $24,000 |
| Kitchen & laundry appliances | 5-year | $15,000 |
| Living, dining and games | 5-year | $19,000 |
| Television and electronics | 5-year | $5,000 |
| Bedroom-level porch | 39-year building | $22,000 |
| Living-level porch | 39-year building | $24,000 |
| Porch furniture | 5-year | $8,000 |
| Outdoor shower | 39-year building | $6,000 |
| Oceanfront terrace | 15-year | $16,000 |
| Garden privacy screens | 15-year | $4,000 |
| Private beach access walk | 15-year | $14,000 |
| Outdoor dining and seating | 5-year | $7,000 |
| Coastal planting | 15-year | $12,000 |
| Garden and path lights | 15-year | $8,000 |
| Shingle roof | 39-year building | $49,000 |

5-year basis: **$95,000**. 15-year basis: **$72,000**. 39-year building basis: **$733,000**. No 7-year assets are assumed.

Combined short-life basis is $167,000, or 18.56% of depreciable basis.

Year-one depreciation at 100% bonus is **$178,746.79**. At no bonus it is **$34,346.79**. Ordinary building depreciation is $11,746.79, using 7.5 months of the first year under the mid-month convention. These amounts are federal deductions, not cash savings.

## Conservative classification judgments

- Pilings, framing, actual floor assemblies, wall finishes, windows, baths, built-in cabinets and seating, roof, attached porches and entry canopy, elevator and attached outdoor shower remain building property. The decorative gable and bay are part of the shell.
- General building plumbing, electrical, HVAC and allocable project soft costs remain in construction rows. The example does not portray these general systems as short-life equipment.
- The detached terrace, private access walk and freestanding privacy screens use 15-year land-improvement treatment. The public promenade and its beach stairs have no allocated basis. Natural vegetation and sand remain land; only installed landscape work appears in the landscaping row.
- Portable upholstered furnishings, tables, chairs, appliances, electronics, outdoor furniture and umbrellas use 5-year treatment under the assumed lodging activity. Small rugs, bedding, art, tableware and game accessories are included in the related furnishing costs. Fixed window-seat carcasses and the game banquette are building property; their removable cushions are included with furniture.
- Bicycles, the public streetscape and neighboring buildings are context with no allocated acquisition basis.
- The specified 39-year transient-establishment treatment is an explicit scenario assumption. An average stay of seven days or less is not by itself the legal test for a nonresidential building. If the building instead qualifies for 27.5 years, first-year ordinary building depreciation would be $16,659.09. A real study must establish the applicable facts.
- All basis has been allocated once. This is a fictional purchase allocation, not a claim about any actual property's tax basis.

## Sources

- [IRS Publication 946, How To Depreciate Property](https://www.irs.gov/publications/p946)
- [IRS Publication 527, Residential Rental Property](https://www.irs.gov/publications/p527)
- [IRS Notice 2026-11](https://www.irs.gov/irb/2026-06_IRB#NOT-2026-11)
- [IRS Cost Segregation Audit Techniques Guide, Publication 5653](https://www.irs.gov/pub/irs-pdf/p5653.pdf)

IRS Publication 946 supports GDS recovery, conventions and depreciation methods. Publication 527 supplies the residential-rental context and the distinction requiring the building classification to be examined. Notice 2026-11 addresses the applicable 100% additional first-year depreciation rules. The IRS Cost Segregation Audit Techniques Guide supplies the structure-versus-personal-property and land-improvement framework; the guide does not certify this fictional allocation.