Is the Big Beautiful Bill actually law?

The House passed the One Big Beautiful Bill Act in 2025. As of this writing, the Senate has not yet voted on a final version. The 100% bonus depreciation provision is widely expected to survive in some form, but the details may change. Work with a tax advisor who is tracking the legislation in real time.

Does 100% bonus depreciation apply to the building itself?

No. The building structure depreciates over 27.5 years (residential) or 39 years (commercial) and does not qualify for bonus depreciation. Only property with a MACRS recovery period of 20 years or less qualifies. This is why cost segregation matters: it identifies the components within the building that do qualify.

Can I use bonus depreciation to create a loss that offsets my salary?

It depends on how your STR is classified. If your average guest stay is 7 days or fewer and you materially participate, the activity is not treated as a passive rental under IRC Section 469, and losses can offset active income including W-2 wages. If you don't meet those tests, losses are passive and can only offset passive income.

What's the difference between bonus depreciation and a cost segregation study?

They work together. A cost segregation study identifies which components of your property qualify for shorter depreciation lives. Bonus depreciation then lets you deduct those components immediately in year one rather than over 5, 7, or 15 years. You need both to maximize the first-year deduction.

What happens if I sell the property after taking 100% bonus depreciation?

The IRS recaptures the depreciation at ordinary income rates (up to 37%) when you sell. This is higher than the 25% rate that applies to regular real property depreciation. A 1031 exchange defers recapture; holding until death eliminates it through stepped-up basis.

Bonus Depreciation in 2025: What the Big Beautiful Bill Means for STR Investors

For the past few years, real estate investors have watched bonus depreciation phase down: 80% in 2023, 60% in 2024, 40% in 2025 under the old rules. The Big Beautiful Bill changes that. For property placed in service after January 19, 2025, 100% bonus depreciation is back, and it's permanent under the current legislation.

Here's what that means in practice, and why it matters more for STR investors than for almost any other real estate category.

What bonus depreciation is

Bonus depreciation (also called the special depreciation allowance or first-year expensing) lets you deduct a large percentage of a qualifying asset's cost in the year you place it in service, rather than spreading it over its MACRS recovery period.

Under the Tax Cuts and Jobs Act of 2017, bonus depreciation was set at 100% through 2022, then scheduled to phase down 20 percentage points per year. The Big Beautiful Bill restores it to 100% and makes it permanent for qualifying property.

What qualifies

Bonus depreciation applies to property with a MACRS recovery period of 20 years or less. For real estate investors, the most relevant categories are:

5-year property: Appliances, carpeting, furniture, and certain fixtures in a residential rental
7-year property: Office furniture and equipment
15-year property: Land improvements including driveways, fencing, landscaping, and outdoor lighting
Qualified Improvement Property (QIP): Interior improvements to nonresidential buildings placed in service after the building was first placed in service (15-year life, bonus eligible)

The building structure itself (27.5-year residential, 39-year commercial) does not qualify for bonus depreciation. This is why cost segregation is so valuable: it identifies the components within a building that do qualify.

The STR advantage

A furnished short-term rental has a higher proportion of bonus-eligible assets than a bare long-term rental. Every piece of furniture, every appliance, every outdoor amenity is personal property on a 5-year schedule. With 100% bonus depreciation, all of it is deductible in year one.

On a $750,000 STR where a cost segregation study identifies $200,000 in 5-year personal property and $60,000 in 15-year land improvements, you could take $260,000 in first-year deductions on top of your regular depreciation. At a 37% marginal rate, that's roughly $96,000 in tax savings in year one alone.

The Big Beautiful Bill: key provisions for real estate investors

The legislation (formally the One Big Beautiful Bill Act, passed by the House in 2025) includes several provisions relevant to real estate investors beyond bonus depreciation:

100% bonus depreciation, permanent: Restored for property placed in service after January 19, 2025. No more phase-down schedule.
Qualified production property: A new category for manufacturing and production facilities with 100% bonus depreciation for construction beginning after January 19, 2025, and placed in service after July 4, 2025.
Section 179 expansion: The bill increases the Section 179 expensing limit, giving investors another tool for immediate deductions on qualifying property.
SALT deduction cap changes: The bill modifies the state and local tax deduction cap, which affects investors in high-tax states like New York and California.

Note: As with any major tax legislation, the Senate may modify provisions before final enactment. Work with a tax advisor who is tracking the bill's progress.

Bonus depreciation vs. Section 179

Both allow immediate expensing, but they work differently:

Section 179 is limited to your taxable income from the business. You can't use it to create a loss.
Bonus depreciation has no income limitation. It can create a net operating loss (NOL) that carries forward to future years.

For investors with significant W-2 or business income who want to use STR losses to offset it, bonus depreciation is typically the more powerful tool. Section 179 is useful for investors who want to expense equipment without creating a loss.

Planning around recapture

The flip side of accelerated depreciation is accelerated recapture. When you sell, the IRS recaptures bonus depreciation at ordinary income rates (up to 37%), not the 25% unrecaptured Section 1250 rate that applies to regular real property depreciation. This is a meaningful difference.

The most common mitigation strategies are:

A 1031 exchange into a replacement property, deferring recapture indefinitely
Holding until death, when heirs receive a stepped-up basis and recapture disappears
Installment sale, spreading the recapture income over multiple years

None of these eliminate recapture, but they give you control over when you pay it. The time value of money on a $96,000 year-one tax saving is substantial even if you eventually pay recapture tax on exit.

What to do now

If you placed a property in service after January 19, 2025, or are under contract on one, talk to your CPA about commissioning a cost segregation study before you file. The combination of a study and 100% bonus depreciation is the most powerful first-year deduction strategy available to STR investors right now.

If you already own properties placed in service before that date, the phase-down rules still apply to those assets, but a look-back study may still generate meaningful deductions on components you haven't yet reclassified.