When it comes to short-term rental (STR) investing, few tax strategies are as powerful as cost segregation paired with bonus depreciation. With the return of 100% bonus depreciation under the Big, Beautiful Bill (BBB), many investors are asking: What is bonus depreciation? How does it work? And is it worth it for my STR?
Let’s explore these questions through the case study of Aaron’s $700,000 STR in Florida, purchased in 2023.
What Is Bonus Depreciation?
Bonus depreciation is a tax incentive that allows real estate investors to immediately deduct the cost of certain assets, rather than depreciating them over decades.
- Under the Tax Cuts and Jobs Act (TCJA) of 2017, bonus depreciation was increased to 100% for qualifying assets.
- It began phasing down in 2023: 80% in 2023, 60% in 2024, and 40% in 2025—until the BBB restored it back to 100% starting in 2025.
- Qualifying assets include components identified in a cost segregation study, such as appliances, flooring, cabinetry, and land improvements.
Case Study: Aaron’s STR in Florida
Aaron purchased his $700,000 property in 2023. By completing a cost segregation study, he was able to reclassify portions of the property into shorter depreciation categories.
Aaron’s Numbers
- Purchase Price: $700,000
- Purchase Year: 2023
- Depreciation Before Cost Seg: $3,328
- Depreciation After Cost Seg: $79,617
- Increased Tax Depreciation (Year 1): $76,289
- Increased Cash Flow (Year 1): $28,227
Before Cost Segregation Allocation
- Real Property: $283,191
- Land: $416,809
- Depreciable Basis: $283,191
After Cost Segregation Allocation
- Real Property: $189,403
- Land Improvements: $46,396
- Personal Property: $47,392
- Land: $416,809
- Depreciable Basis: $283,191
What This Means for Aaron
By accelerating nearly $94,000 into short-life assets, Aaron was able to claim an additional $76,289 in depreciation during Year 1—boosting his cash flow by over $28,000.
Airbnb Rental Markets Set to Outperform in 2025
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- 🔎 The demand trends driving guest bookings and what amenities maximize revenue in each market.
Bonus Depreciation Example: 2023 vs 2025
Since Aaron purchased in 2023, bonus depreciation was only 80%. Had he waited until 2025, under the BBB’s restored 100% bonus depreciation, his results would have been even greater.
| Metric | 2023 (80% Bonus Depreciation) | 2025 (100% Bonus Depreciation) | Difference |
| Accelerated Assets (Land Improvements + Personal Property) | $93,788 | $93,788 | – |
| Bonus Depreciation Taken | $75,030 | $93,788 | +$18,758 |
| Year 1 Increased Tax Depreciation | $76,289 | $95,047 | +$18,758 |
| Year 1 Increased Cash Flow (37% tax bracket) | $28,227 | $35,168 | +$6,941 |
Key takeaway: Aaron still saw major benefits in 2023, but if purchased in 2025, his first-year cash flow boost would have been nearly $7,000 higher.
What Qualifies for Bonus Depreciation?
According to IRS guidelines, bonus depreciation applies to assets with a useful life of 20 years or less, including:
- Personal property (appliances, furniture, fixtures)
- Land improvements (parking, landscaping, fences)
- Renovations and buildouts
By pairing a cost segregation study with these rules, STR investors can front-load deductions that normally take decades.
Why STR Investors Should Pay Attention
Short-term rentals are unique because when owners meet material participation requirements (average stay under 7 days, 500+ hours of work, or being the primary manager), the losses from cost segregation and bonus depreciation can offset active income like W-2 wages or business earnings.
This “STR loophole” makes bonus depreciation far more powerful for Airbnb owners than for traditional landlords.
FAQs About Bonus Depreciation and STRs
1. What is bonus depreciation in 2025?
Bonus depreciation allows investors to deduct the cost of qualifying assets (such as furniture, appliances, and land improvements) in the year they are placed in service, rather than spreading those deductions over 5, 7, or 15 years. In 2025, the bonus depreciation has been restored to 100%.
2. What qualifies for bonus depreciation in a short-term rental?
Assets with a useful life of 20 years or less qualify. For STRs, that typically means items identified in a cost segregation study: appliances, flooring, cabinets, HVAC systems, and landscaping improvements.
3. How does the Big, Beautiful Bill affect bonus depreciation?
The BBB restored 100% bonus depreciation starting in 2025, meaning STR investors can fully deduct eligible assets in the first year, rather than phasing down to 40% under prior law.
4. Can bonus depreciation offset W-2 income for STR owners?
Yes—if the STR meets IRS material participation standards. This is why bonus depreciation is especially valuable for short-term rental owners who actively manage their properties.
Conclusion
Aaron’s case study shows the power of bonus depreciation in action. Even at 80%, he unlocked over $76K in tax savings and $28K in additional cash flow during Year 1. Under the Big, Beautiful Bill, those numbers would have been even higher.
For STR investors, the key question isn’t “What is bonus depreciation?”—it’s “How much can I save if I apply it to my property?”
Connect with a Chalet specialist today to see how cost segregation and bonus depreciation can maximize your ROI and slash your tax bill. It’s completely free.
