The Ultimate STR Bonus Depreciation Prospecting Guide
Two identical $600K cabins, two different markets: one takes a $162,000 Year-1 tax write-off, the other $94,000. The difference is the market — and it is knowable before you make an offer.
The PunchlineProperty-level bonus depreciation figures normally exist for one reason: an investor paid $5,000–$15,000 for a formal cost segregation study on a home they already closed on. Those studies sit in private files, one property at a time. This guide inverts that order — 2,400+ property-level analyses, built with the same 5/15/39-year bucketing and calibrated against real formal studies, rolled up into rankings across 100 markets. A decision-support layer that arrives before the offer.
100
Markets covered
2,400+
Properties analyzed
10
Actual reports from the sample
—
Last data refresh
I · How we built it
II · How to use it
The Background
Bonus depreciation, briefly — and why the details move real money.
Bonus depreciation — IRS §168(k) — lets a short-term rental owner deduct 100% of the property's 5-year personal property (finishes, cabinetry, appliances, FF&E) and 15-year land improvements (pools, hot tubs, outdoor kitchens, hardscaping) in the year the property is placed in service, instead of spreading those deductions across 5, 15, or 39 years. The Year-1 loss can offset active income (W-2, business, capital gains) only if the property qualifies as a short-term rental under IRC §469 — average guest stay of 7 days or less — and the owner materially participates (typically 100+ hours and more than any other individual). Without both, the loss is passive and only offsets passive income. For a typical STR, the bonus-eligible share runs 15–35% of purchase price. On a $750,000 cabin at a 37% federal bracket, that translates to roughly $41,000–$78,000 in Year-1 federal tax savings. The One Big Beautiful Bill Act (P.L. 119-21, July 2025) restored 100% bonus permanently for property placed in service on or after January 19, 2025 — the rate is no longer scheduled to phase down.
The rate is the same 100% for every buyer who clears the STR loophole bar. What qualifies for it is not. Two identical price tags can produce Year-1 write-offs 15 percentage points apart — worth tens of thousands of dollars at the same bracket. The variance comes from three variables that are knowable before you make an offer: land ratio (share of purchase price that's non-depreciable dirt), fixture prevalence (what's actually inside the property that qualifies for the 5-year and 15-year buckets), and state §168(k) conformity (whether the state claws the deduction back on the state return). Model these three up front — and confirm your operating plan hits the 7-day-average and material-participation tests — and you walk away from deals that look good on cap rate but leak five figures of Year-1 tax value. Skip the modeling and you find out at your CPA's desk in March — after closing, with no leverage to reprice.
DepreciMax's Data Foundation
Every ranking rolls up from real, line-item property reports.
Below are three of the 2,400+ DepreciMax reports powering the guide — one from each of three top-tier markets. Each report itemizes every 5-year, 15-year, and 39-year line so the market medians below don't come from a model — they come from the sum of properties like these.
Loading exemplars…
This is what powers every ranking below.
How to read expanded rows
National baseline: 5-yr 13.4% · 15-yr 6.4% · land 28% of purchase price. Green overages are favorable — more bonus-eligible property, or less non-depreciable land. Click any market row to see its bucket-level build-out, features, finish highlights, and sample analyzed properties.
Section 03 · Top 20 · full detail
Market
Sample bonus dep. median
Sample land median
State §168(k)
Fixture summary · % of listings
Confidence
Loading top 20 markets…
Rankings continue after the property-type breakdowns below — markets 21–100 appear in compact form once you have the strategic frame.
Sources: county assessor land records · property-level DepreciMax estimates, calibrated against benchmark cost segregation studies · state §168(k) conformity verified per Department of Revenue guidance. Prospecting-grade estimates — not tax advice; confirm with a qualified CPA before an offer.
Section 06 · State §168(k) Conformity
Federal 100% bonus depreciation is only half the picture — state treatment can add or subtract a five-figure Year-1 delta.
Under OBBBA (P.L. 119-21, July 2025), federal §168(k) is 100% bonus permanent. State conformity splits into four camps. The map colors every state by its posture; the strip below the map names the states and rates that actually move the Year-1 delta.
Full conformityPartial add-backDecoupled — 100% add-backNo individual income tax
Full conformity
17 states
Federal write-off passes through with no state add-back. AL, CO, DE, IL, KS, LA, MI, MO, MS, MT, ND, NE, NM, OK, OR, UT, WV.
Partial add-back
2 states
Most of the federal deduction adds back on the state return. NC (3.99% top rate, 85% add-back) and MN (9.85% top rate, 80% add-back).
Decoupled — 100% add-back
22 states + DC
Full federal add-back on the state return. Highest-rate hits: CA 13.3%, NY 10.9%, NJ 10.75%, HI 11%, DC 10.75%, MA 9%, VT 8.75%, WI 7.65%, ME 7.15%, CT 6.99%.
No individual income tax
9 states
No state return, no state offset. Federal write-off passes through untouched. AK, FL, NH, NV, SD, TN, TX, WA, WY.
Section 07 · Tax Savings Calculator
Your STR's true Year-1 return — with bonus depreciation factored in.
Most STR underwriting stops at cash flow and calls a slim 1–3% cash-on-cash a "hold." Federal §168(k) rewrites that number. Below, the same property is modeled two ways: cash flow alone, then cash flow plus the Year-1 federal (and, where the state conforms, state) tax savings a materially-participating STR owner captures under the loophole. Pick any market from Section 01, dial in your purchase, and the market's bonus-eligible median, land ratio, and state §168(k) posture populate live.
A · True Year-1 return
The side-by-side — cash flow vs. cash flow plus §168(k).
All fields are live. Change any input and every downstream figure — NOI, debt service, tax savings, cash-on-cash return, the 5-year outlook below — recomputes instantly. Market lookup pulls the bonus median and land ratio from the Study dataset backing Section 01 (typing a market name or ranking number both work).
Incremental Year-1 after-tax cash from electing §168(k), federal only unless the market's state conforms.
Prospecting-grade estimate — not tax advice. State §168(k) treatment can add or subtract five figures on the Year-1 delta; the market lookup applies the state's conformity posture automatically. See Section 04 for the full state map. Depreciation recapture on sale, appreciation, and principal paydown are not modeled — this is a federal-first cash-benefit view.
B · 5-Year Outlook
The same property across a 5-year hold — bonus dep concentrates in Year 1, recurring cash flow after.
The Year-1 §168(k) write-off is a one-time event; the recurring return in Years 2–5 is cash flow alone plus modest straight-line depreciation on the 39-year remainder. Adjust rent and expense growth to see how the cumulative 5-year return holds up.
Same purchase, market, and financing as Sub-section A above.
Rent growth %/yr%
Expense growth %/yr%
Year
Cash flow
Straight-line net after-tax
With bonus net after-tax
Δ Bonus adds
5-year Δ bonus dep adds
—
Cumulative incremental cash from §168(k) over 5 years.
5-year ROI on cash invested (with bonus)
—
Cumulative net after-tax ÷ down payment.
Year 2–5 cash flow reflects the rent- and expense-growth rates above. Depreciation recapture on sale, property appreciation, principal paydown, and non-conforming state add-back timing are not modeled — this is a federal cash-benefit view, not a full deal underwrite. For a property-specific line-item bonus dep estimate, see Section 05 for state posture and the exemplar reports in Section 02 for line-item structure.
Section 08 · Notable exclusions
The Famous Markets Missing from Our Top 100
Loading…
Section 09 · Traps
Markets & Property Types That Look Better Than They Are.
Four patterns that show up frequently in candidate shortlists but under-deliver on the specific job this guide is built for — Year-1 bonus depreciation. These are not bad investments; several are strong on revenue or appreciation. They just don’t clear the tax-math bar. If one of your candidates fits a pattern below, price the deduction carefully before you underwrite.
Trap 01
New-build barrier-island single-family
The pitch: Turnkey builder-grade FF&E, code-mandated hurricane hardware, generous outdoor amenity budgets — the fixture list screams bonus-eligible.
The reality: Land ratios in oceanfront ZIPs routinely sit above 25%, which compresses the depreciable basis. Combined with modern code-heavy structural share, a 22% Year-1 write-off is the ceiling on these — not the median the amenity mix suggests.
Trap 02
HOA condos in decoupled states (CA, NJ, NY)
The pitch: Turnkey rental with 15% pro-rata credit on HOA amenities (pool, gym, common area) — a real and defensible 15-year bucket lift.
The reality: The federal Year-1 number is honest. But state add-back in CA / NJ / NY cuts the effective Y1 benefit roughly in half. A $110k federal write-off falls to ~$55k after state disallowance in the first year. Read the §168(k) conformity section before you underwrite.
Trap 03
Pre-1990 cabin flips before renovation
The pitch: Rustic charm, cheap entry point, obvious value-add via refurb.
The reality: Photos of pre-renovation older stock flag most MEP, flooring and finish as 39-yr structural, not 5-yr personal property. At purchase, the 5-yr bucket comes back thin. Post-renovation the numbers can be excellent — but the deduction lives on the reno, not the acquisition. Price them as two separate depreciation events.
Trap 04
Ultra-premium ski (Aspen, Deer Valley, Beaver Creek)
The pitch: Genuinely excellent revenue markets, high-end finish, ski-in/ski-out.
The reality: Excluded from this guide’s Top 100 for tax-math reasons: land ratios routinely above 30% compress the depreciable basis. Even at $3M+ purchase prices, the Year-1 write-off percentage lands below 18% — producing a smaller dollar deduction than a $1M cabin in Broken Bow. Absolute dollars scale with price; the percentage doesn’t.
Section 10 · Sample reports
10 Actual Depreciation Reports From Our Sample.
Ten full DepreciMax property-report summaries hand-picked from the 2,400+ analyses powering this guide — every key STR type covered, spanning the full medal range from Diamond to Bronze. Each summary occupies one US-letter page and mirrors the exact structure of a live DepreciMax report: purchase price, bonus-eligible split by IRS class, per-line-item breakdown, market comparison, and calibrated Year-1 write-off. Use the index below to jump to any report.
Total bonus-eligible (5-yr + 15-yr) · 100% rate per OBBA$186,06518.7% of purchase price
Analyst notes · condensed
Bucketing calibrated to IRS Cost Segregation ATG — 5/15/39-yr classes per §1245/§1250 + HCA case law.
Calibration check: 18.7% bonus eligible, at Bronze floor; high land ratio + older build compress depreciable basis.
Land ratio 25% — high for the Coachella Valley; depreciable basis $746,250, bonus-eligible = 24.9% of basis.
CA decoupled from federal §168(k) — expect ~$35k state add-back in Year 1; federal write-off unaffected.
Featured reports are hand-selected DepreciMax analyses representative of each medal tier and property type. Bucket splits, line items and finish highlights reflect the actual per-property categorization used in a full 5-page DepreciMax report; Year-1 write-off = purchase price × bonus-eligible % (federal 100% §168(k), before any state add-back). Snapshot as of Q3 2026; addresses are analyzed comps at time of publication and may be sold, relisted, or repriced by the time you view them.
Section 11 · Post-close checklist
You Bought. Now Capture the Deduction.
The guide’s job ends the day you go under contract. Everything that follows — documenting the property, deciding on a formal cost seg, staying inside §469, filing the numbers — is execution. Four steps, in order, so the Year-1 write-off you underwrote actually shows up on your return.
01
Document the property before the first renter
Take 40–60 photos of every fixture, appliance, outdoor amenity, and (for condos) HOA common area before you list. Include serial numbers on high-value appliances (Sub-Zero, Wolf, wine coolers). These photos are your §168(k) support file: if you later commission a formal cost seg, the engineer needs them to defend the 5-yr and 15-yr classifications. If you don’t commission one, they still document your position in case of exam.
02
Decide on a formal cost segregation study
Rule of thumb: for properties $500k–$2M with a marginal tax bracket of 32%+, the $5–15k engagement usually pays for itself in Year 1 alone. Below $500k or below the 24% bracket, DepreciMax’s estimate may be sufficient for internal underwriting even if you don’t file it as documentation. Above $2M or in a complex depreciation position (LKE, prior passive losses, syndication), always engage a firm.
03
Clear the §469 gate in Year 1
The STR loophole is a §469 exception, not an automatic benefit. Two conditions must both hold across the tax year: average guest stay of 7 days or less, and material participation by the owner (typically 100+ hours and more than any other individual involved). Track hours in a contemporaneous log. You can delegate cleaning and management; you cannot delegate the participation test if you want the active loss.
04
What to expect on the return
Schedule E for rental income and operating expenses. Form 4562 for the depreciation election — bonus deduction reported on Line 14. If the §469 participation test isn’t met, Form 8582 suspends the loss (not lost, just deferred). If you commissioned a formal cost seg, the firm delivers a report your CPA files as documentation. If your state is decoupled, expect a matching state-return add-back and a longer state depreciation schedule.
This is a framework, not tax advice. Your CPA holds the pen on every filing decision above. Bring them into the process before closing; the §469 test, in particular, is easier to plan for than to reconstruct after the fact.
Section 12 · Glossary
Terms & Acronyms Used in This Guide.
Working definitions for the tax and depreciation terms this guide uses. These are practitioner-oriented explanations, not statutory language — your CPA is the authoritative source for how any of them apply to your specific return.
§168(k)
Federal Internal Revenue Code section governing bonus depreciation. Under OBBA (P.L. 119-21), 100% bonus rate applies to qualifying property placed in service in the current window.
§469
Passive activity loss rules. Gates when rental losses can offset active (W-2, business) income. The STR “loophole” is a §469 exception, not an automatic benefit.
§1245 / §1250
IRS classification codes for personal property (§1245, typically 5-yr life) and real property (§1250, typically 15-yr or 39-yr). Cost seg engineers bucket line items against these.
Add-back (state)
When a state has decoupled from federal §168(k), the state disallows the bonus deduction. The investor adds the federal bonus deduction back to state taxable income and depreciates straight-line for state purposes.
Bonus depreciation
Accelerated deduction that lets the buyer expense qualifying property in the year placed in service, instead of depreciating over its class life. 100% at the federal level per OBBA.
Bonus-eligible %
Share of purchase price that qualifies for bonus depreciation in Year 1. Sum of 5-yr and 15-yr buckets, excluding land and 39-yr structural.
Conformity (state)
Whether a state’s tax code follows federal §168(k). Full = matches federal, no add-back. Decoupled = state disallows bonus. Partial = state allows a fraction (e.g. 50%).
Cost segregation study
Engineering analysis by a qualified firm that reclassifies portions of a real property into shorter depreciation lives (5-yr, 15-yr). Runs $5,000–$15,000; produces IRS-defensible documentation.
Decoupled
A state that does not conform to federal §168(k) bonus depreciation. Requires an add-back on the state return.
Depreciable basis
Purchase price minus the non-depreciable land value. The dollar base against which 5/15/39-yr classifications apply.
FF&E
Furniture, Fixtures & Equipment. Fully furnished STRs typically convey $60k–$90k of FF&E, categorized as 5-yr personal property.
HCA case
Hospital Corp. of America v. Commissioner (1997). Landmark tax court decision establishing the legal basis for cost segregation studies on real property.
Land ratio
Percent of a property’s purchase price attributed to non-depreciable land, per county assessor records. Higher land ratio = smaller depreciable basis = smaller Y1 write-off.
Material participation
§469 test for whether an owner’s involvement in the activity is active rather than passive. Typically 100+ hours in the year and more than any other individual involved.
OBBA
One Big Beautiful Bill Act (P.L. 119-21). Federal legislation that restored 100% §168(k) bonus depreciation.
STR loophole
Colloquial term for the §469 exception: rentals with average guest stays of 7 days or less are treated as short-term rentals (not passive real-estate rentals) if the owner materially participates.