Owning a short-term rental (STR) can be more than a hotel venture – it can also be a profitable tax strategy, especially in 2025. With the help of a cost segregation study in combination with 100% bonus depreciation under the newly passed Big, Beautiful Bill (BBB), owners of STRs are able to accelerate deductions substantially and supercharge cash flow.
Here’s how it works, with a real-world example from our investor’s Airbnb in Florida.
Case Study: STR in Florida
This investor purchased a short-term rental property in Florida and had a cost segregation study done when she bought the property. The results were staggering:
| Metric | Airbnb in FL |
| Purchase Price | $1,175,000 |
| Purchase Year | 2023 |
| Depreciation Before Cost Seg | $14,209 |
| Depreciation After Cost Seg | $152,471 |
| Increased Tax Depreciation (Year 1) | $138,262 |
| Increased Cash Flow (Year 1) | $51,157 |
Before Cost Segregation
- Real Property: $700,000
- Land: $475,000
- Depreciable Basis: $700,000
After Cost Segregation
- Real Property: $530,530
- Land Improvements: $21,785
- Personal Property: $147,685
- Land: $475,000
By reallocating nearly $170,000 into accelerated asset categories, this investor boosted first-year deductions by $138,262—providing her with over $51,000 of additional cash flow immediately.
What Investors Need to Know (Frequently Asked Questions)
1. What does bonus depreciation mean?
Bonus depreciation—also known as additional first‑year depreciation—is a tax incentive that permits businesses to immediately deduct a substantial percentage of an asset’s purchase price in the year it is placed in service, rather than spreading the deduction over the asset’s useful life as under regular depreciation rules.
2. Can bonus depreciation create a loss?
Yes—because bonus depreciation accelerates deductions into the first year, it can reduce taxable income enough to produce a net business loss. That loss may then be carried forward into future years, subject to applicable rules.
3. Can you take bonus depreciation on rental property?
No—bonus depreciation does not generally apply to rental property if its MACRS class life exceeds 20 years (e.g. residential rental property’s 27.5-year life). That makes rental buildings ineligible for bonus depreciation.
4. What assets qualify for bonus depreciation?
The IRS defines ‘qualifying property’ for bonus depreciation purposes as:
- Tangible MACRS‑depreciable property with a recovery period of 20 years or less.
- Specific computer software.
- Water utility infrastructure.
- Certain film, television, and live theatrical production assets.
- Newly eligible Section 168(n) of the BBB: Qualified Production Property (QPP)—specific nonresidential real property used in manufacturing or refining. To qualify, construction must begin after December 31, 2024, and the property must be placed in service by December 31, 2030.
Excluded from eligibility are assets that:
- Were used before acquisition by the taxpayer.
- Were acquired from a related party or component member of a controlled corporate group.
- Have a basis derived from a seller or inherited property.
5. What is 100% bonus depreciation and when will it expire?
Meaning: 100% bonus depreciation lets you deduct the entire cost of qualifying property in the first year it’s placed in service, rather than spreading deductions over its useful life.
Before the 2025 bill: It was scheduled to phase down (100% in 2022, then 80%, 60%, 40%, 20%, and 0% by 2027).
After the 2025 One Big Beautiful Bill:
The permanency gives businesses clarity and stability for future investment planning. 100% bonus depreciation is now permanent for qualifying property placed in service after January 19, 2025. The prior phase-down schedule is eliminated.
6. When did bonus depreciation start?
Introduced in 2002 (30%), rose to 50% in 2003, had temporary 100% periods, and was greatly expanded with TCJA in 2017.
- 2017–2022: 100% bonus depreciation
- 2023: 80% bonus depreciation
- 2024: 60% bonus depreciation
- 2025: Restored to 100% under the BBB (Big, Beautiful Bill)
The Triple-Deduction Effect of the Big, Beautiful Bill
The BBB reinstatement of 100% bonus depreciation adds even more benefit to the cost segregation study. STR owners no longer must wait several years before they can recoup their investment in fixtures, furnishings, or land improvements. Instead, they can claim the entire deduction in year one.
When combined with cost segregation and material participation, the BBB generates a triple-deduction impact:
- Accelerated depreciation through cost segregation.
- Immediate write-off with bonus depreciation.
- Offsetting active income through STR tax treatment.
How to Implement This Strategy
- Find or acquire an STR property, ideally valued at $500,000+ to justify the investment in a cost segregation study.
- Conduct a cost segregation study with Chalet to break out short-lived assets like furnishings, fixtures, and land improvements—and get those into bonus depreciation eligibility.
- Place the property in service during 2025 to qualify for 100% bonus depreciation and take full advantage of upfront write-offs.
- Ensure material participation for STR qualification—average stays under 7 days and active management qualify you to use depreciation losses against earned income.
- Capture accelerated deductions upfront—like Andrew did—to generate significant Year 1 tax savings and boost cash flow.
- Plan for depreciation recapture upon sale (these gains may be taxed as ordinary income)—so consult your CPA in advance.
Conclusion: Transforming STR Tax Savings
This case study demonstrates just how powerful this combination can be: $138K in additional deductions and $51K in additional first-year cash flow.
For STR owners and Airbnb, active management, 100% bonus depreciation, and cost segregation can be a game-changer. With the BBB now in effect, it is time to take full advantage of it.
Through utilizing these assets, STR investors can reinvest earlier, expand their portfolios more effectively, and ultimately keep more of their rental incomes.
And work with a tax professional to execute and protect your deductions. Click here to get a free consultation and projections of these benefits with your investment.
