The 30-second definition
Bonus depreciation — codified in IRS §168(k) — is a federal tax provision that lets investors deduct the cost of qualifying property components in Year 1 instead of spreading the deduction over the standard 27.5-year (residential) or 39-year (commercial) timeline.
For a short-term rental investor in the 37% tax bracket, that timing shift translates directly to cash. A $700,000 STR purchase with 24% bonus-eligible assets generates roughly $62,000 in federal tax savings in the year of purchase — money that would otherwise have been deducted in pieces over three decades.
Where the deduction comes from
When you buy an investment property, the IRS assigns every component to a depreciation class based on its useful life:
- 5-year personal property — appliances, cabinetry, countertops, flooring, FF&E, decorative fixtures. Bonus eligible.
- 15-year land improvements — patios, driveways, landscaping, pools, hot tubs, fire pits, outdoor kitchens. Bonus eligible.
- 39-year structural property — foundation, framing, roof, HVAC ductwork, drywall. NOT bonus eligible.
- Land itself — never depreciable. The dirt isn't deductible.
The 5-year and 15-year buckets are your bonus-eligible amount — typically 18–32% of purchase price for a well-finished STR with outdoor amenities. That's the chunk you get to write off in Year 1.
A worked example
That $51k doesn't arrive as a check. It reduces what you would have owed on other income. For an STR investor who qualifies for the active treatment under the short-term rental rules, the deduction can offset W-2 salary — meaning the cash hits your paycheck via reduced withholding or your annual return.
Why STR investors benefit more than long-term landlords
Two reasons:
1. The STR tax election. Under standard IRS rules, rental losses are passive — they can only offset passive income. Most W-2 earners can't use rental depreciation to reduce their salary tax. But STRs with average stays of 7 days or fewer (and material participation by the owner) are treated as active businesses, which unlocks the deduction against ordinary income. Full breakdown of the STR loophole here.
2. STRs are amenity-heavy. Airbnb and VRBO properties compete on outdoor living, finishes, and turnkey furnishings — which is exactly what classifies as 5- and 15-year property. A bare-bones long-term rental typically has 12–15% bonus-eligible value; a fully appointed STR can have 22–32%.
2026 update — bonus dep is back to 100%, permanently. The One Big Beautiful Bill Act (OBBBA) restored 100% bonus depreciation for property placed in service after January 19, 2025, with no scheduled phase-down. Every STR you buy this year qualifies for the full Year 1 deduction.
What about cost segregation?
"Bonus depreciation" and "cost segregation" get conflated, but they're different things. Cost segregation is the engineering process of identifying and quantifying the 5-, 15-, and 39-year components of a building. Bonus depreciation is the tax rule that lets you deduct the 5- and 15-year portions immediately.
You need a cost seg analysis to know how much of your purchase qualifies — that's what an engineer (or AI-based tool like DepreciMax) produces. Then bonus depreciation rules determine what percentage of that you can claim in Year 1 (currently 100% for 2026 purchases).
Formal cost seg studies cost $5,000–$8,000 and happen after closing. DepreciMax produces a calibrated estimate from listing photos for $99 — designed to be run before you make an offer, so you can factor the deduction into your purchase decision.