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Short term rental owners and buyers
Bonus depreciation is back at 100% and permanent for property acquired after January 19, 2025. The first year deduction on a short term rental then depends on the acquisition date, the building life, and how much of the purchase is allocated away from the structure by a study.
We build the schedule, settle the building life in writing and model the recapture before you commit.
Building life, 27.5 or 39 years, settled in writing before the first schedule
Bonus cutoff fixed by acquisition date and contract date, not the placed in service date
Missed or understated depreciation caught up on one return with Form 3115, without amending
Depreciation is the deduction behind a short term rental tax loss where the cash flow is positive; whether the loss can be used is decided under the passive activity tests.
Bonus depreciation is back at 100% and permanent for property acquired after January 19, 2025; property acquired on or before that date stays on the 40% and 20% phase down.
The deduction is recaptured when you sell, so a projection has two halves, and the second is the one to model before you commit.
Purchase price, placed in service date and how the property is let are enough to model both halves.
This is the first thing to settle, because every other number is computed off it.
The default for a dwelling unit let on ordinary residential terms.
Where guests are transient rather than residential, the building can fall into the longer life instead. It depends on the facts of the letting, not on the platform you list on.
The building life is the first thing to settle, because every other number on the schedule is computed off it.
Residential rental property is depreciated over 27.5 years, the default for a dwelling let on ordinary residential terms. Where the letting is transient rather than residential, the building can fall into the 39 year nonresidential class instead, a slower write off on the structure.
The distinction depends on the character of the letting, and it is decided separately from the seven day passive activity test: a property can be non passive under one rule and still residential under the other..
We settle the building life in writing before the first schedule is prepared, so the position is on file.
Bonus depreciation applies to assets with a recovery period of 20 years or less: the 5 year contents and the 15 year land improvements that are separated from the structure by a cost segregation study.
Under the 2017 law the allowance was phasing out: 40% for 2025, 20% for 2026 and none from 2027. In Public Law 119-21 Congress restored 100% bonus depreciation permanently for qualified property acquired after January 19, 2025.
The IRS issued interim guidance in Notice 2026-11 on January 14, 2026, which taxpayers may rely on provided they follow it for all eligible property placed in service in those years.
Property acquired on or before January 19, 2025, or under a written binding contract entered into before January 20, 2025, stays on the old schedule at the reduced rate. Two properties placed in service in the same month can get different answers, decided by when each was put under contract.
We fix the acquisition date from the contract and closing documents before the schedule is built.
Worked example
In a study of a property acquired in 2026, $90,000 is allocated to 5 year assets and $40,000 to 15 year land improvements:
| Class | Amount | Recovery period | First year at 100% bonus |
|---|---|---|---|
| 5 year assets | $90,000 | 5 years | $90,000 |
| 15 year land improvements | $40,000 | 15 years | $40,000 |
| Total | $130,000 | 20 years or less | $130,000 |
The structure is depreciated over its own life as before. Whether the $130,000 reduces your tax this year depends on the passive activity tests.
27.5 or 39 years settled on the facts of the letting and documented.
Fixed from contract and closing documents, so the bonus rate is the right one.
Contents, land improvements and structure on their own lives from the first return.
Missed or understated depreciation taken on one return with Form 3115, no amended returns.
Cost segregation quoted by our own team where the deduction is larger than the fee.
Recapture and the gain modeled before a sale, exchange or change of use.
Every dollar of depreciation you take reduces your basis, which increases the gain on sale.
The gain is not taxed at one rate. Depreciation taken on the 5 and 15 year property is recaptured as ordinary income; depreciation on the building is recaptured under its own rule at a capped rate. The faster the write off, the more of the eventual gain is taxed as ordinary income.
We model the exit alongside the deduction, and where a like kind exchange is planned we model that too.
Closing statement, contract date, and how the property is let.
The building life settled in writing, 27.5 or 39 years.
Built on the correct lives, or caught up with Form 3115 where prior returns missed depreciation.
Recapture and gain modeled against the plan for the property.
Acquisition date and bonus rate fixed before closing, so the first schedule is right.
The schedule checked, and missed depreciation caught up on the next return.
The recapture and the gain modeled before the decision is made.
Priced on the property and the schedules, not on the deduction. What we quote against:
These are the factors, not a quote.
Prepared by the firm that files the return the schedule ends up on.
Licensed CPAs and Enrolled Agents on every return
Fixed quote agreed before work starts
"We're going to as tax professionals be too busy in February or March, we're going to be filing people's taxes. So if you want to start planning you want to meet your adviser far ahead of time, especially if you know something big is happening that year."
"Received a letter from the IRS that some old tax returns were filed incorrectly and reached out to Dimov Tax for help. They solved my problem quickly and completely."
Our team includes CPAs and Enrolled Agents who work on individual returns, business taxes and tax planning. Tell us what you need help with when you get in touch.
Send the purchase details and the plan for the property and we will run the deduction and the exit together.
General information rather than advice for your circumstances. Outcomes depend on facts specific to you, so speak to a CPA before acting on it.
