Key Takeaways
- Hi everyone, Jed Collins here, your guide to the rules and policies around short-term rentals.
- For things bought in 2025, you can deduct 40% of the cost right away!
- What This Means for You If you own or are thinking about buying a short-term rental, these possible changes could be important.
- You can also contact your local planning department directly or consult with a real estate attorney who practices in your area.
Hi everyone, Jed Collins here, your guide to the rules and policies around short-term rentals. Today, we’re going to talk about something called depreciation. It’s a way for people who own buildings to lower their taxes over time. Think of it like saying a building slowly loses value as it gets older, and the tax rules let you count that loss.
Right now, in early 2025, there are rules about how much of a building’s cost you can deduct each year. But things might change later this year! Let’s break it down in a simple way.
How Depreciation Works Today
Usually, when you buy a building, you can’t just say it all went away in one year for tax purposes. Instead, you have to spread out the cost over many years. This is called depreciation.
There are different ways to do this. One common way is called MACRS (it’s a long name, so don’t worry about remembering it!). MACRS says how many years you have to take to lower the value of your building for taxes. For a place where people live, like an house, it’s usually 27 and a half years. For other buildings, like stores or offices, it’s often 39 years.
Another rule is called bonus depreciation. This lets you take a bigger chunk of the cost off your taxes in the first few years. For things bought in 2025, you can deduct 40% of the cost right away! This is less than before. For example, if you bought something for $100,000 in 2022, you could deduct the whole $100,000 right away. In 2023, it was 80%, and in 2024, it was 60%. Now it’s going down to 40%.
There’s also something called Section 179. This lets some businesses take the full cost of certain things off their taxes right away, up to a certain amount each year. For 2025, that limit is $1,250,000. But there are rules about what kind of property this works for, and your business has to have enough income.
What Could Change in 2025?
Now, here’s where it gets interesting. The people in charge of making laws about money (like taxes) have been talking. They made a plan in April 2025 that could lead to some big changes later this year.
One of the big ideas is to bring back 100% bonus depreciation! That means if you buy something that qualifies, you could deduct the entire cost in the first year, just like it was in the past. Some people are even saying this could go back to January 20, 2025.
This is a big deal for people who invest in buildings. If they can deduct more money sooner, it can help them save on taxes and have more money to use for other things.
What This Means for You
If you own or are thinking about buying a short-term rental, these possible changes could be important.
- If 100% bonus comes back: You might want to think about buying things or making improvements sooner rather than later to get the bigger tax break.
- Even with 40% bonus: It’s still a good idea to understand how depreciation works. There are even ways to study your building to find parts that can be depreciated faster, called cost segregation.
But remember, these are just possibilities right now. The laws could stay the same. So, it’s important to keep an eye on what happens and talk to a tax expert to see what’s best for you.
Frequently Asked Questions
Do I need a permit to operate a short-term rental?
Most cities and counties require some form of permit, license, or registration to operate a short-term rental legally. Requirements vary significantly by jurisdiction, so check your local government website or contact your city clerk before listing your property. Operating without required permits can result in fines ranging from several hundred to several thousand dollars per violation.
How do I find the STR regulations for my area?
Start by searching your city or county government website for short-term rental or vacation rental ordinances. Many municipalities have a dedicated STR registration page with application forms and requirements. You can also contact your local planning department directly or consult with a real estate attorney who practices in your area.
What is the short-term rental tax loophole?
The STR tax loophole allows property owners who materially participate in managing their short-term rental to deduct losses against active income like W-2 wages. This works because rentals with an average guest stay of seven days or fewer are not classified as passive rental activities under IRS rules. It is one of the most powerful tax strategies available to real estate investors.
What is cost segregation and how does it benefit STR owners?
Cost segregation is an engineering study that reclassifies components of your property into shorter depreciation periods, typically 5, 7, or 15 years instead of 27.5 years. This accelerates your depreciation deductions, creating larger tax savings in the early years of ownership. When combined with bonus depreciation, a cost segregation study can generate substantial paper losses in year one.
Is buying an Airbnb property still worth it in 2026?
Short-term rental investing can still generate strong returns, but market selection and accurate underwriting matter more than ever. The best opportunities are in markets with strong demand drivers, manageable regulations, and room for new supply. Running conservative revenue projections using real comparable data before purchasing is essential to avoid overpaying.
