Big Beautiful Bill: Potential Tax Benefit for Short-Term Rentals

Big Beautiful Bill: Must-Read for STR Investors

A significant legislative update is poised to reshape the financial landscape for short-term rental (STR) investors. Signed into law on July 4, 2025, the One Big Beautiful Bill (OBBB) introduces substantial tax advantages that could boost profitability and accelerate growth for property owners (depending on situation). For savvy investors, understanding these changes is the first step toward leveraging them for maximum benefit.

If you own or are considering investing in a short-term rental, this legislation offers powerful new incentives that could potentially lower your tax burden and improve your cash flow. The reintroduction of 100% bonus depreciation and the permanent status of the Qualified Business Income (QBI) deduction are particularly impactful, creating opportunities for substantial first-year write-offs and long-term savings.

In this blog, we'll explore what the Big Beautiful Bill means for STR owners, how to qualify for its key benefits, and what steps you should take now to capitalize on these changes. With the right strategy, these tax provisions can transform your investment returns. However, it's crucial to remember that this article is for informational purposes only and does not constitute financial or tax advice – with that being said, here’s a quick disclaimer below.

Disclaimer: The information in this article is provided for educational and informational purposes only and should not be interpreted as tax, legal, or financial advice. The One Big Beautiful Bill (OBBB) contains complex provisions, and every investor’s situation is unique. Tax benefits such as bonus depreciation, QBI deductions, and material participation rules depend on accurate record-keeping, specific eligibility criteria, and your individual filing strategy. Before making any financial decisions, purchasing property, or claiming deductions, you should consult with a licensed CPA, tax advisor, or attorney who specializes in real estate and short-term rentals. Neither the authors make any representations regarding your individual tax outcomes or compliance requirements.

What is the Big Beautiful Bill?

The One Big Beautiful Bill (OBBB) is a comprehensive piece of legislation signed into law on July 4, 2025. While the bill covers a wide range of economic policies, its most significant impact on the real estate sector comes from its tax provisions for property investors. The legislation effectively reverses the scheduled phase-out of several key tax benefits that were introduced by the Tax Cuts and Jobs Act (TCJA) of 2017.

For short-term rental owners, the two most critical components of the OBBB are the full restoration of 100% bonus depreciation and the permanent extension of the Qualified Business Income (QBI) deduction. Previously, these benefits were set to expire or diminish, creating uncertainty for investors. The OBBB not only brings them back in full force but also provides long-term clarity, allowing for more confident and strategic investment planning. These changes are designed to encourage investment in property improvements and stimulate business activity within the rental market.

Key Tax Benefits for STR Owners

The OBBB introduces two cornerstone tax benefits that every STR investor should understand. These provisions can generate significant "paper losses" that offset real income, freeing up capital and enhancing your overall return on investment.

100% Bonus Depreciation

Bonus depreciation is a powerful tax incentive that allows business owners to deduct a large percentage of the cost of qualifying assets in the first year they are placed in service, rather than depreciating them over several years. Before the OBBB, this benefit was being phased out, dropping to 40% in 2025. The new law restores bonus depreciation to 100% for qualifying assets placed in service after January 19, 2025, through the end of 2027.

This is a monumental change for STR investors. It means you can immediately deduct the full cost of many items used to furnish and improve your property.
Examples of assets that typically qualify for 100% bonus depreciation include:

• Personal Property: Furniture, appliances, electronics, and decor.

• Land Improvements: Landscaping, fences, and swimming pools.

• Qualified Improvement Property (QIP): Interior, non-structural upgrades like new flooring, lighting, cabinetry, and HVAC systems.

By expensing these costs upfront, you can create a substantial tax deduction in year one. For instance, if you spend $50,000 on furnishing a new STR property, you could potentially deduct the entire $50,000 from your taxable income for that year, generating significant tax savings. It is important to note the timeline: the OBBB's 100% bonus depreciation only applies to assets purchased and placed in service after January 19, 2025. Assets placed in service before this date fall under the old, lower depreciation rules.

Note: Again, please check with your CPA or tax advisor. Also, it’s important to understand what “placed into service” means and ensure you’re meeting the requirements.

Qualified Business Income (QBI) Deduction

The Big Beautiful Bill also made the Qualified Business Income (QBI) deduction permanent. Previously set to expire, this provision is now a reliable long-term tax-saving tool for eligible STR owners. The QBI deduction, also known as Section 199A, allows owners of pass-through businesses (like sole proprietorships, partnerships, and S-corps) to deduct up to 20% of their qualified business income.

To claim this deduction for an STR, your rental activity must be considered a "trade or business" by the IRS, not a passive investment. The IRS provides a safe harbor rule (Notice 2019-07) to help STR owners qualify. Under this rule, you must:

• Spend at least 250 hours per year on "rental services." This includes activities like advertising, guest communication, coordinating cleaning and maintenance, and managing bookings.

• Maintain detailed, contemporaneous records of all hours spent and tasks performed.
  
  

If you meet these requirements, you can deduct up to 20% of your net rental income, directly reducing your federal tax bill. For high-income earners, certain limitations may apply, but for most STR operators who actively manage their properties, the QBI deduction represents a major, now-permanent tax advantage.

Note: Since these provisions are subject to change, please check with your CPA or tax advisor.

Maximizing Deductions with Cost Segregation and Section 179

To fully harness the power of the OBBB, investors should explore advanced tax strategies like cost segregation and the Section 179 deduction. These tools work in concert with bonus depreciation to maximize first-year write-offs.

Cost Segregation Studies

While a building itself is typically depreciated over 27.5 years, a cost segregation study can accelerate this timeline. This engineering-based study identifies and reclassifies parts of your property into shorter depreciation categories. Components like carpeting, specialty lighting, and exterior landscaping can be assigned 5, 7, or
15-year recovery periods instead of 27.5 years.

Assets with a recovery period of 20 years or less are eligible for 100% bonus depreciation. By conducting a cost segregation study, you can move a significant portion of the property's purchase price (often 20-30%) into these shorter-life categories, making them fully deductible in the first year. For a high-value property, this can result in a six-figure deduction that dramatically reduces your taxable income.

Section 179 Expensing

Section 179 is another valuable tool that allows you to deduct the full purchase price of qualifying equipment in the year it is placed in service. For 2025, the deduction limit is $1.22 million. While bonus depreciation is often more advantageous for STRs because it has no income limitations, Section 179 offers more flexibility. You can selectively apply it to specific assets, whereas bonus depreciation applies to all qualifying assets in a class. An investor might use both, applying Section 179 to certain assets and bonus depreciation to others, especially those identified through a cost segregation study.

Reinvesting Your Tax Savings for Growth

The primary benefit of these accelerated deductions is improved cash flow. The tax savings you generate aren't just a number on a form; they represent real capital that can be reinvested to grow your STR business. Strategic reinvestment can create a powerful cycle of growth.

Consider using your tax savings to:

• Upgrade Your Properties: Enhance guest experience with high-end amenities, smart home technology, or a hot tub. These upgrades can justify higher nightly rates and attract more bookings.

• Hire a Professional Team: Outsource tasks like cleaning, maintenance, or guest communication to free up your time to focus on acquiring new properties. Just make sure to keep your material participation hours up!

• Expand into New Markets: Use the freed-up capital as a down payment on your next STR investment, scaling your portfolio faster than you otherwise could.

By leveraging tax savings to improve and expand your business, you not only increase your revenue potential but also create more opportunities for future deductions.

Navigating Local Restrictions and Regulations

While the federal government is offering these significant tax benefits, it's crucial to remember that the STR industry is heavily regulated at the local level. Cities across California and the nation are implementing their own rules, which can impact your ability to operate. For example, some municipalities have placed caps on the number of STR licenses, enforced strict zoning laws, or even banned them entirely in certain neighborhoods, as seen in places like Beverly Hills.

Before investing, it is essential to thoroughly research the specific regulations in your target market. Staying informed about local ordinances, permit requirements, and tax obligations is just as important as understanding federal tax law. Partnering with a real estate professional who specializes in the STR market, like Joshua Guerra and Kailen Wilkerson - can provide invaluable guidance in navigating this complex regulatory landscape.

Below are some helpful guides we wrote around licensing and restrictions on short-term rentals:

• San Diego
• Big Bear
• Palm Springs
• Indio
• Joshua Tree

Your Action Plan for STR Tax Success

The Big Beautiful Bill has opened a window of opportunity, but taking advantage of it requires proactive planning. Here are the steps you should take now:

1. Consult a Qualified Tax Advisor: The single most important step is to work with a CPA who specializes in real estate and understands the nuances of STR taxation. They can help you determine if you meet material participation rules, whether to file on a Schedule C or E, and how to properly apply bonus depreciation and QBI deductions.

2. Forecast Your Returns: Before making a new investment, use tools like an Airbnb profit calculator to estimate your potential revenue, operating expenses, and cash flow. Factoring in potential tax savings will give you a clearer picture of your true return on investment.

3. Document Everything: To qualify for benefits like the QBI deduction and non-passive loss treatment, you must keep meticulous records of the time you spend on your rental activities. Use a spreadsheet or time-tracking app to log every hour and task.

Unlock Your STR Investment Potential

The One Big Beautiful Bill brings notable updates to bonus depreciation and the QBI deduction that could open the door to improved tax efficiency for some short-term rental investors. Depending on an owner’s individual tax situation and eligibility, these provisions may offer meaningful benefits. When evaluated alongside strategies like cost segregation, and with guidance from a qualified tax professional, they can help investors make more informed decisions about their financial and operational planning.

Joshua Guerra and Kailen Wilkerson are dedicated to helping investors like you find, analyze, and acquire STR properties. With deep knowledge of the market and a network of essential professionals, they can help you through the process. Contact us today to start building your STR portfolio.