Ed If you’re in real estate, you should be talking about this.
The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, permanently restored 100% Bonus Depreciation for qualifying property placed in service after January 19, 2025, including the short-life components of Short-Term Rental properties (IRS, BDO summary). This is significant news for anyone in the STR space.
What This Means for STR Investors:
Bonus depreciation allows real estate investors to immediately deduct the cost of qualifying property improvements in the year they’re placed in service, rather than spreading the deduction over many years.
For short-term rental investors whose average guest stay is seven days or less and who meet IRS material participation tests (commonly the 100-hour test where no one participates more than the owner, or the 500-hour test), the activity is treated as non-passive under Treas. Reg. §1.469-1T(e)(3)(ii), allowing losses to offset W-2 and other ordinary income in year one of ownership.
Key Benefits:
- Immediate Tax Deductions: Write off furniture, appliances, and improvements in year one
- Offset Active Income: STR investors with an average guest stay of seven days or less who materially participate can offset W-2 and other ordinary income (no Real Estate Professional Status required)
- Accelerated Wealth Building: Reinvest tax savings into additional properties
- Permanent Legislation: This isn’t a temporary measure — it’s here to stay
If you’re considering an STR investment or want to understand how this affects your current portfolio, let’s connect. Understanding the tax implications is crucial for maximizing your returns.
Originally posted on LinkedIn July 2025
Want to understand how bonus depreciation stacks with other tax strategies like 1031 exchanges, passive loss rules, and the new SALT deduction cap? Read the Complete Guide to Real Estate Tax Benefits (2026).
How Much Could You Save With Cost Segregation?
Example study: a $623,000 rental property paired with a $2,000 cost segregation study yielded $23,610 in year-one tax savings, a nearly 12x payback ratio. Numbers vary by property based on bracket, basis, and component mix.
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