# Laurel Ridge: illustrative financial assumptions

Fictional acquisition of a furnished cabin for $600,000, including $90,000 nondepreciable land; these authored allocations are not a completed engineering study or construction bids.

The main floor contains the king primary bedroom and its private bathroom. Upstairs contains a room with two bunk beds and a room with two twins, each with its own private bathroom. A central hall connects the stairs, upstairs suites and dedicated game loft. The compact model has a 12 by 9 metre cabin footprint and approximately 2,000 square feet across the main floor and partial upper level; dimensions illustrate the program and are not a measured appraisal.

100% business use, calendar tax year, acquired February 1, 2026 and placed in service June 15, 2026.

The building uses an explicit 39-year transient-lodging assumption with average stays of seven days or less; stay length alone does not determine the recovery period.

Eligible acquired property is assumed to satisfy the 100% bonus rules, including acquisition, prior-use and unrelated-party requirements; no ADS election or requirement is assumed.

Without bonus, 5-year assets use 200% declining balance and 15-year assets use 150% declining balance with the half-year convention; all assets enter service in June and no mid-quarter convention applies.

The building uses straight-line depreciation and the mid-month convention, giving 6.5 months in the first tax year.

The well and septic serve domestic building plumbing and receive conservative building treatment. The retaining wall is freestanding and does not support the cabin.

Deductions are not tax savings; passive-activity, at-risk and other limits can affect whether deductions are currently usable. No tax rates or cash benefit are modeled.

## Allocation

| Component | Basis | Recovery |
|---|---:|---|
| Gravel driveway and parking | $18,000 | 15 years |
| Site retaining wall | $12,000 | 15 years |
| Foundation | $35,000 | 39 years |
| Well and septic | $24,000 | 39 years |
| First-floor oak flooring | $7,000 | 39 years |
| First-floor walls and services | $84,000 | 39 years |
| First-floor windows and doors | $18,000 | 39 years |
| First-floor rooms and stairs | $16,000 | 39 years |
| Primary bedroom furniture | $6,500 | 5 years |
| Primary private bathroom | $8,500 | 39 years |
| Kitchen cabinets and counters | $14,000 | 39 years |
| Kitchen and laundry appliances | $10,000 | 5 years |
| Stone fireplace and hearth | $8,000 | 39 years |
| Living and dining furnishings | $18,000 | 5 years |
| Second-floor deck and flooring | $9,000 | 39 years |
| Upper log walls and chimney | $56,000 | 39 years |
| Second-floor windows | $12,000 | 39 years |
| Second-floor room partitions | $13,000 | 39 years |
| Bunk and twin room furniture | $11,500 | 5 years |
| Two upstairs private baths | $15,500 | 39 years |
| Pool table and arcade | $10,000 | 5 years |
| Attached wraparound deck | $30,000 | 39 years |
| Portable hot tub | $12,000 | 5 years |
| Deck seating and dining | $8,000 | 5 years |
| Lower-level patio | $8,000 | 15 years |
| Freestanding fire pit | $4,000 | 15 years |
| Adirondack chairs | $4,000 | 5 years |
| Installed landscaping | $8,000 | 15 years |
| Exterior site lighting | $5,000 | 15 years |
| Roof and porch covering | $25,000 | 39 years |
| Total depreciable basis | $510,000 | |
| Land, not depreciable | $90,000 | None |
| Total investment | $600,000 | |

5-year basis: $80,000. 7-year basis: $0. 15-year basis: $55,000. Building basis: $375,000. No asset is forced into a 7-year class.

## First-year arithmetic

100% bonus: $135,000 eligible short-life basis + $375,000 × 6.5 / 468 = **$140,208.33**.

No bonus: $80,000 × 20% + $55,000 × 5% + $375,000 × 6.5 / 468 = **$23,958.33**. These are depreciation deductions, not savings. Values are computed before rounding.

## Classification judgments

The purchase-price allocation is an educational engineering-style schedule: 73.5% of depreciable basis remains with the building. A real study would reconcile acquisition documents, land valuation, measured quantities, condition, indirect costs and supported valuation methods. The model depicts the assets and does not supply those records. There is no accelerated allocation of ordinary structural or general building-system costs.

The ATG residential-rental matrix, printed page 315, expressly includes underground septic systems, tanks and laterals with building plumbing. The domestic well and pump also serve general building use here, so the entire $24,000 well/septic row remains with the building without a short-life pump carveout. Only the well head and septic access covers are visible in the model; underground networks are represented by those service points.

The freestanding site retaining wall does not carry the cabin; building-support masonry remains in foundation. The attached deck stays with the building, and its covering is included in roof. The removable self-contained hot tub has no permanent masonry basin. The separate wood-burning fire ring serves the grounds, has no building connection and is treated as a land improvement; its movable chairs are a separate 5-year row. Permanent bath fixtures, cabinets, kitchen sink, fireplace, windows and general HVAC stay with the building. Landscaping excludes existing forest, initial clearing and nondepreciable earthwork. Guest pool-table and arcade equipment are assumed to be movable lodging-service assets rather than a separate amusement business.

The seven-day test concerns passive-activity rental rules and does not itself make a building nonresidential. This fictional property is explicitly assumed to operate as transient lodging for the 39-year scenario. Actual facts may require 27.5-year residential-rental treatment. The model is an explanatory cutaway: the main floor has a primary suite, an open living and dining area, an L-shaped kitchen and enclosed laundry. Upstairs has two private suites and a dedicated game loft, with a void above the downstairs living room. The first floor is shown completely before the upper storey is installed. Floor-specific component groups allow the lower rooms to be inspected without the upper floor covering them.

## Sources

- [IRS Publication 946](https://www.irs.gov/publications/p946)
- [IRS Publication 527](https://www.irs.gov/publications/p527)
- [IRS Notice 2026-11](https://www.irs.gov/pub/irs-drop/n-26-11.pdf)
- [IRS Cost Segregation Audit Techniques Guide (not authoritative law)](https://www.irs.gov/pub/irs-pdf/p5653.pdf)

IRS sources reviewed September 25, 2026. The Cost Segregation Audit Techniques Guide is examination guidance, not binding authority. Notice 2026-11 addresses the additional first-year allowance for eligible property acquired after January 19, 2025. This schedule assumes qualifying facts; it does not establish them.