100% bonus depreciation in 2026 — the complete short-term rental investor guide

What changed in 2026?

Under the original Tax Cuts and Jobs Act (TCJA) of 2017, 100% bonus depreciation was scheduled to phase out on the following schedule: 100% (2017-2022), 80% (2023), 60% (2024), 40% (2025), 20% (2026), 0% (2027).

The One Big Beautiful Bill Act (OBBBA), signed in 2025, reversed the phase-out and permanently restored the 100% rate for property placed in service after January 19, 2025. This applies to all §168(k)-qualifying property, including the 5-year personal property and 15-year land improvements that dominate a short-term rental's depreciable basis.

How much bonus depreciation can you get from a short-term rental in 2026?

Typical STR bonus-eligible share is 18-27% of purchase price, varying by market. The two dominant drivers:

1. Land value ratio — the portion of the purchase price that goes to non-depreciable land. Median US residential land ratio is 25-35%; STR-optimized markets run 11-20%. Lower land ratio = higher depreciable basis.
2. Amenity mix — pools, hot tubs, fire pits, outdoor kitchens, custom finishes, high-end appliances. All 5-year or 15-year property, all 100% bonus-eligible.

Market-level medians from the 2026 DepreciMax STR Bonus Depreciation Study:

• 27% median bonus-eligible — Lake Cumberland, KY, Poconos, PA, Branson, MO
• 26% median — Broken Bow, OK, Joshua Tree, CA, Winter Park, CO
• 25% median — Smoky Mountains, TN, Orlando, FL
• 23-24% median — most other top-50 markets
• Below 18% — coastal luxury markets (Nantucket, Aspen, Hilton Head, Destin) generally don't clear the study's Bronze threshold due to high land ratios and lower amenity density per dollar

See the full ranking on the 2026 STR Bonus Depreciation Study.

Which property is bonus-depreciation eligible on an STR?

5-Year Personal Property (100% bonus-eligible)

Under IRS §168(k), these are 100% deductible in Year 1:

• Finish flooring (hardwood, tile, LVP — the finish layer, not the subfloor)
• Custom cabinetry
• Stone / quartz countertops
• All appliances (Sub-Zero, Wolf, wine coolers, built-in espresso, commercial range)
• Decorative plumbing fixtures
• Frameless glass shower enclosures
• Decorative lighting (chandeliers, sconces, pendants)
• Recessed can lights (fixture only, not the rough-in)
• Fireplace inserts (not the structural surround)
• Window treatments
• Built-in shelving
• Smart home systems (Lutron, Sonos, Nest, Ring)
• Mini-split HVAC (personal-property component)
• All conveyed FF&E — furniture, art, kitchenware, electronics

15-Year Land Improvements (100% bonus-eligible)

These are the biggest STR differentiators. All 100% deductible in Year 1:

• Pools, hot tubs, fire pits (critical STR differentiators)
• Outdoor kitchens, pergolas, gazebos
• Landscaping + irrigation
• Retaining walls
• Fencing
• Deck / patio surfacing
• Outdoor lighting (permanent)
• Exterior paved surfaces (driveway, walkways)
• For condos: 15% pro-rata share of ALL HOA common area improvements

39-Year Structural Property (NOT bonus-eligible)

These depreciate straight-line over 39 years with no Year-1 acceleration:

• Foundation, framing, roof
• Windows and exterior doors
• Central HVAC ductwork
• Plumbing rough-in, electrical rough-in
• Drywall and paint
• Embedded / grouted tile
• Structural fireplace surrounds (masonry)

What is the STR loophole and why does it matter for bonus depreciation?

Rental real estate is normally treated as passive activity under IRC §469 — meaning rental losses (including bonus depreciation) can only offset passive income, not W-2 wages or active business income. For most rental property investors, that limits the tax value of a large Year-1 deduction.

The STR loophole (sometimes called the "Airbnb loophole") is an exception. If a rental property meets both conditions below, it's treated as non-passive, and losses (including bonus depreciation) can offset W-2 income directly:

1. Average guest stay ≤ 7 days — the property's tenants must average 7 days or fewer per stay across the year. This qualifies it as a "short-term rental" for §469 purposes, not a passive rental.
2. Material participation under IRC §469 — the owner must materially participate in the STR business. Most commonly satisfied via the 100-hour test (100+ hours AND more than anyone else) or the 500-hour test.

Both conditions must be met for the same tax year. When they are, the bonus depreciation from an STR purchase becomes ordinary deduction against W-2 income, producing large first-year tax refunds for high-earning investors.

Full walkthrough of the 7-day rule and material participation tests →

State conformity to federal §168(k) — 2026

Federal bonus depreciation is universal, but state-level tax conformity varies. Same $125K deduction produces meaningfully different total tax savings depending on the property's state.

Full conformity (federal deduction also flows through on state return)

Alabama, Arizona, Arkansas, Delaware, Hawaii, Iowa, Indiana, Kansas, Kentucky, Louisiana, Maryland, Maine, Michigan, Missouri, Mississippi, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, Oregon, Rhode Island, Utah, Virginia, Vermont, West Virginia.

No state income tax (federal only, but no state tax to reduce)

Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming.

Partial conformity (federal with state addback)

Colorado, Minnesota (80% addback), North Carolina (85% addback), Arizona (conservative election available).

No state benefit / decoupled

California, Georgia, Idaho, Illinois, New Jersey, New York, Pennsylvania, South Carolina, Wisconsin. In these states, you get the full federal deduction but the state disallows or heavily limits bonus depreciation on the state return.

How does bonus depreciation get recaptured when an STR is sold?

Depreciation is not free money — it reduces the property's cost basis. On sale, the gain up to the accumulated depreciation is recaptured at ordinary income tax rates (for §1245 property — 5-year personal property) or at up to 25% (for §1250 property — 15-year and 39-year real property).

Example: buy a $500K STR, take $125K Year-1 bonus depreciation. Basis drops to $375K. Sell 5 years later for $600K. Gain = $600K − $375K = $225K. Of that, $125K is recaptured (up to 25% rate on §1250 portion), and $100K is long-term capital gain (0/15/20% rate).

Common strategies to manage recapture:

• Hold longer — spread depreciation across more years, reducing the accumulated recapture at any point
• 1031 exchange — defer recapture by rolling into another investment property
• Charitable donation — eliminate recapture entirely on the donated property
• Step-up at death — heirs receive stepped-up basis, eliminating the deferred recapture liability

Full walkthrough of depreciation recapture on STR sale →

Choosing the right STR to maximize bonus depreciation

Two questions dominate the property selection process:

1. Which market? — Because market-level land ratio and amenity density determine the median bonus-eligible % for any property in that market. See the 51 city-specific field guides or the Top 50 Study leaderboard.
2. Which property within the market? — Because two similarly-priced properties in the same market can differ by 10+ percentage points on bonus-eligible % based on amenity mix, finish quality, and land component. See the STR house-hunting checklist for what to look for on tour.

For a specific property under consideration, DepreciMax's $99 property report produces a line-item 5-year / 15-year / 39-year classification calibrated to formal cost segregation studies. See how it works.