A sweeping new tax law signed into effect in July 2025, known as the One Big Beautiful Bill (OBBB), has created powerful new tax incentives for real estate investors. One of the most impactful components of this legislation is the restoration of 100% bonus depreciation, which can significantly reduce taxable income for those purchasing short-term rental properties like cabins, cottages, or vacation homes.
Here’s what you need to know about how this new law can work for you. Let’s start with understanding bonus depreciation.
What Is 100% Bonus Depreciation?
100% bonus depreciation allows you to immediately deduct the full cost of qualifying property components in the year they’re placed in service. Instead of depreciating assets like appliances, furniture, and land improvements over 5, 7, or 15 years, you can now deduct their entire value upfront.
This provision was in the process of being phased out but with the OBBB has been restored and made permanent, retroactive to January 20, 2025.
How It Applies to Short-Term Rentals
If you’re purchasing a short-term rental (STR) cabin for investment purposes, here’s how you can benefit:
- Eligible Property: You can deduct the cost of appliances, furniture, hot tubs, HVAC systems, decks, landscaping, fencing, and more.
- Cost Segregation Study: To take advantage of bonus depreciation, you’ll need a cost segregation study to separate out the value of these components from the total purchase price.
- Immediate Write-Off: The value identified in the study (often 20%–30% of the purchase price) becomes an immediate first-year deduction.
Let’s look at an example of a hypothetical cabin in our market. Using a cabin purchased for $950,000 and the following values, this is what you could expect to see:
- Land (non-depreciable): $150,000
- Building (depreciated over 27.5 years): $600,000
- Personal Property & Land Improvements: $200,000
Year 1 Bonus Depreciation Deduction: $200,000
Tax Savings (at 37% bracket): $74,000
That’s $74,000 you keep in your pocket instead of sending to the IRS. This is the win you are looking for in real estate!
So, who Qualifies? Here are some of the criteria necessary to meet:
- Material Participation: You must actively manage the STR (or use the short-term rental in a way that allows it to qualify, such as renting for an average of less than 7 days per guest).
- Placed in Service: The property must be available for rent during the same year you claim the deduction.
- Cost Segregation: Required to reclassify and accelerate asset depreciation.
Final Thoughts
Trump’s One Big Beautiful Bill has handed real estate investors a powerful tool to reduce tax liability and improve cash flow. If you’re thinking of buying a short-term rental property in 2025 or beyond, this law could make the difference between a good investment—and a great one. Cost segregation is a tax benefit that I personally have been using for some time, but this new bill makes it an even more attractive option!
Remember, smart investing starts with smart tax planning. With that in mind, it’s important to note that each taxpayer’s situation is unique. So, make sure you discuss this with your tax advisor as you implement it. For suggestions on a cost segregation specialist, reach out and we can provide you the names of the ones we use.
