The One Big Beautiful Bill (OBBB) was officially signed into law on July 4th. At nearly 1,000 pages long, the legislation is packed with a wide range of provisions. But for short-term rental (STR) owners, one of the most important changes is the reinstatement of 100% bonus depreciation, a provision that’s been eagerly awaited by real estate investors and tax advisors alike.
To understand why this change is such a big deal, it’s worth taking a quick step back to understand the STR tax strategy and what makes it so powerful in the first place.
The Short-Term Rental Tax Strategy
There’s a unique set of rules under Section 469 of the tax code that creates a major planning opportunity for STR owners. If:
- The average stay per guest is seven days or less, and
- The owner materially participates in the rental activity (i.e., self-manages the property by spending 100+ hours and more than anyone else, or puts in 500+ hours of valid participation time)
If this criteria is met, then the resulting income or losses from that property are considered non-passive.
In simple terms, that means any paper losses, like those created through depreciation, can be used to directly offset active income, including W-2 wages or business income. This has made STRs a strong strategy for high earners looking to reduce their tax burden while investing in real estate.
A Quick Refresher on Bonus Depreciation
This strategy became even more attractive after the Tax Cuts and Jobs Act (TCJA) of 2017 introduced 100% bonus depreciation, allowing real estate investors to frontload deductions by conducting a cost segregation study. That law, however, came with a catch, bonus depreciation would phase out by 20% per year beginning in 2023 until it disappeared entirely in 2027.
Prior to the OBBB, bonus depreciation was scheduled to sit at 40% in 2025. But with the new legislation, we’re now back at 100% permanently.
What This Means in Practice
To illustrate how significant this change is, let’s walk through a simple example.
Assume you purchase a $1,000,000 short-term rental property. You meet the STR tax criteria (average stay under 7 days, material participation), and you cost segregate the property to accelerate depreciation.
Let’s also assume:
- 20% of the purchase price is allocated to land (non-depreciable), leaving $800,000 of depreciable basis
- A typical cost segregation study reclassifies 20% to 30% of the building basis into bonus eligible personal property. For the purposes of this example, we’ll assume a 25% reclassification percentage.
Here’s how the numbers stack up:
As you can see, the reinstatement of 100% bonus depreciation more than doubles the available first year deduction and resulting tax savings in this scenario. For many investors, this opens the door to supercharging year one deductions and unlocking immediate cash flow and reinvestment potential.
But Watch Out for the Fine Print
One important detail in the bill is that 100% bonus depreciation only applies to property that was purchased and placed in service after January 19, 2025.
So, if you bought a property in late 2024 and placed it in service in early 2025, it doesn’t qualify for the full 100% bonus depreciation, it would have been subject to the old 40% rules instead.
This nuance has major implications on the tax treatment of specific properties. That’s why it’s so important to work with a qualified professional to review your situation and make sure you’re applying the rules correctly.
Final Thoughts
From a tax perspective, the One Big Beautiful Bill creates a major opportunity for STR owners to once again leverage accelerated depreciation to offset active income. It amplifies an already powerful strategy, giving short-term rental investors even more tools to grow and scale while minimizing tax liability.
That said, there are lots of moving parts, and the bonus depreciation rules are just one small slice of a much larger bill. If you’re considering a new STR acquisition or wondering how the new law affects your current holdings, work with a qualified tax advisor to avoid missteps and make sure you’re taking full advantage of what’s available.
