If you own or are thinking about investing in a vacation rental, the Big Beautiful Bill might be the most impactful piece of legislation you haven’t been following.
At the center of this bill is something investors love: bonus depreciation. And it could mean huge tax savings for short-term rental (STR) owners.
Let’s break it down in plain English.
What Is Bonus Depreciation?
Normally, when you buy a rental property, you get to write off a portion of its value each year over a long period of time (typically 27.5 years for residential property). That’s called depreciation and it helps reduce your taxable income year by year.
Bonus depreciation lets you accelerate those write-offs. Instead of spreading them over nearly three decades, you can write off a massive chunk in year one.
Until recently, this meant being able to write off 100% of qualifying property improvements and components in the first year. But that percentage started phasing down in 2023 and was expected to disappear entirely by 2027.
What Does the Big Beautiful Bill Do?
Before this new bill, bonus depreciation had dropped to just 60 percent in 2024 and was set to decline again. The Big Beautiful Bill resets that to 100 percent but only for assets placed in service after January 19, 2025.
Bonus depreciation allows you to write off the cost of certain parts of your rental property in the first year instead of spreading that write off over decades.
This applies to things like:
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Appliances
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Furniture
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Landscaping
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Flooring
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Cabinets
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Light fixtures
In most cases, these are items that wear out faster than the building itself.
What Is a Cost Segregation Study?
To use bonus depreciation, you need to know what parts of your property qualify. That is where a cost segregation study comes in.
Here is the simple version:
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You buy a property for $500,000
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The land (which cannot be depreciated) is worth $100,000
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That leaves $400,000 in depreciable value
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A cost segregation study breaks that into categories based on IRS rules
Typically, about 20 to 35 percent of that value can be classified as short life assets and depreciated in year one using bonus depreciation.
In this example, 30 percent of $400,000 is $120,000. With 100 percent bonus depreciation back in play, you can deduct that full $120,000 from your income the year the property goes live.
Real Example: The Big Beautiful Tax Break
Let us say you:
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Buy a vacation rental for $500,000 in July 2025
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Furnish it for $20,000
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Put it in service by August 2025
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Complete a cost segregation study that identifies $130,000 in bonus eligible components
If you are in a 35 percent tax bracket, your potential tax savings would look like this:
$130,000 multiplied by 0.35 equals $45,500 in tax savings
That is not a deduction spread over 27 years. That is money this year that could reduce your tax bill or even generate a refund.
What This Means for STR Owners
1. Only properties placed in service after January 19, 2025 qualify for 100 percent bonus depreciation.
The Big Beautiful Bill is not retroactive. If you bought in 2023 or 2024, your depreciation is capped at the older phase down rates.
2. You need a cost segregation study to unlock the full benefit.
These studies are typically performed by specialized firms and are well worth the cost given the potential return.
3. You must materially participate.
To offset W 2 or business income, you need to be actively involved in managing the rental including guest messaging, booking management, pricing, and operations.
4. The bigger the investment, the bigger the tax break.
While all eligible properties benefit, higher value properties naturally unlock larger write offs.
Final Thoughts
The Big Beautiful Bill makes 2025 one of the best years in recent memory to invest in vacation rentals. Whether you already had plans to buy or are now reconsidering, bonus depreciation can dramatically boost your first year return and give you meaningful tax relief.
Just make sure you time your purchase right, get a cost segregation study, and structure your involvement to qualify.
If you need a property to leverage bonus depreciation with you can always leverage Rabbu and our agent partners to find the best property!
