100% Bonus Depreciation (2026): OBBBA Rules for STRs

Surge is a real estate brokerage, loan broker and property manager, not a CPA firm or tax advisor. This is general education, not tax, legal or investment advice. Confirm your situation with a qualified CPA before you buy, file, change withholding, or move retirement money.

If you are buying a short term rental in 2026, 100% bonus depreciation is back, and this time it is permanent. The One Big Beautiful Bill Act (OBBBA) turned the old phase down into a full first year write off for qualifying property acquired after Jan. 19, 2025. For an STR buyer, that means the furnishings, appliances, and site improvements inside the purchase can become first year deductions once you place the rental in service, instead of being spread over several years.

This guide goes deeper than our short term rental tax loophole pillar on one piece of the strategy: the bonus depreciation rules themselves. We cover the two dates that decide your rate, which assets qualify, how to opt out, how bonus depreciation compares with Section 179 expensing, and what IRS Notice 2026-11 changes. Everything below is tied to a primary source so you and your CPA can check it.

100% Bonus Depreciation in 2026: The Short Answer

The rate is 100% for qualified property acquired after Jan. 19, 2025, with no scheduled end (26 U.S.C. 168(k)).
Two dates matter: when the taxpayer acquired the property (a written binding contract can control) and when it was placed in service.
What can qualify: property with a recovery period of 20 years or less. In a rental property, that usually means 5, 7 and 15 year assets. The building and the lot do not qualify.
It is the default. You claim it unless you opt out for a whole category of property on a timely filed return.
The IRS guidance is Notice 2026-11, which says taxpayers can generally rely on the existing bonus depreciation regulations with the new dates swapped in.

What the One Big Beautiful Bill Act (OBBBA) Changed

Bonus depreciation (the tax code calls it the additional first year depreciation deduction, or special depreciation allowance) is a tax incentive allowing businesses to deduct a percentage of the cost of qualifying property immediately instead of spreading depreciation deductions over its useful life. It is one of the largest tax benefits available to a business making capital investments.

The old phase down under the Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act of 2017 set bonus depreciation at 100% for property placed in service before January 1, 2023, then phased it down by 20 percentage points annually, according to the background section of Notice 2026-11. Those bonus depreciation rates meant 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026, with the tax break scheduled to end for most property placed in service after 2026. Many STR investors who purchased homes in 2023 and 2024 got a partial bonus and depreciated the rest over several years.

The new law: permanent 100% bonus depreciation

Congress passed the One Big Beautiful Bill Act (Public Law 119-21), and President Trump signed it on July 4, 2025. Section 70301 of the OBBBA replaced the phase down with a permanent 100% deduction for qualified property acquired after January 19, 2025, and removed the requirement that property be placed in service before January 1, 2027. Lawmakers left the definition of qualified property largely unchanged, so the existing provisions still answer most questions about what assets qualify.

On Jan. 14, 2026, Treasury and the IRS released Notice 2026-11 with interim guidance. The notice says proposed rules are coming, and until then taxpayers rely on the existing guidance in Treas. Reg. 1.168(k)-2, substituting Jan. 19, 2025 for the old Sept. 27, 2017 cutoff. Much of the notice deals with specified plants and crops, long production period property, aircraft, and qualified sound recording productions, which do not affect rental owners.

The law also created a separate 100% allowance for qualified production property (certain manufacturing structures where construction begins after Jan. 19, 2025), according to IRS Publication 946. That provision is aimed at manufacturers, not rental homes, so do not confuse the two when you read headlines about full expensing.

The Two Dates That Decide Your Rate

Date 1: Acquired after January 19, 2025 (the binding contract rule)

The effective date provision says property is not treated as acquired after the day a written binding contract is entered into for its acquisition. So a buyer who signed an enforceable purchase contract on January 10, 2025, and closed in March would generally fall outside the new rule, even though the closing came later.

Under Treas. Reg. 1.168(k)-2(b)(5), as summarized in Notice 2026-11, the acquisition timing under a written binding contract is the latest of these:

when the contract was entered into,
when the contract is enforceable under state law,
when all cancellation periods end, if the contract has any, and
when all conditions in contingency clauses are satisfied, if it has any.

The rule also says a contract that limits damages to a specified amount (for example, through a liquidated damages provision) is not a binding contract for this purpose. In that case acquisition generally happens when more than 10% of the total cost is paid or incurred. Real estate contracts often include option periods, financing contingencies and earnest money terms, so ask your CPA how these criteria apply to your specific contract.

For someone buying in 2026, this is mostly a non issue: the contract came long after the cutoff. It matters for owners who signed before it and placed property in service later. IRS Publication 527 confirms that property acquired before January 20, 2025 stays on the prior law phase down, even if the rental opens later.

Date 2: Placed in service

You claim bonus depreciation in the tax year the property is placed in service. Publication 946 says property is placed in service when it is ready and available for a specific use, even if it is not being used yet. For a short term rental, the practical test is a furnished home that is listed and open for bookings, with the business ready to begin taking guests. A house you closed on December 20 that is still empty on December 31 is not available to guests, so it does not qualify for that taxable year.

Because the 2027 deadline is gone, there is no longer a cliff where the rate drops. The urgency now is your own filing calendar: if you want the deductions on your 2026 return, you have to place the rental in service by December 31, 2026.

What Qualifies for 100% Bonus Depreciation: 5, 7 and 15 Year Property

Qualifying property includes tangible property depreciated under the modified accelerated cost recovery system (MACRS) with a recovery period of 20 years or less, plus certain computer software. In practice, most qualified assets in a vacation rental are tangible personal property. Here is how the assets that qualify map to a typical short term rental, using IRS Publication 527 Table 2-1 for the examples:

Recovery period	Examples in a rental	Bonus eligible?
5 year property	Furniture used in rental property, appliances such as stoves and refrigerators, carpets, computers	Yes
7 year property	Office furnishings and equipment, and property with no class life that has not been assigned elsewhere	Yes
15 year property	Site work such as fences, roads, and shrubbery; Publication 946 also lists pools and paved parking areas as land improvements	Yes
Building	The structure and its structural components (27.5 or 39 year real property)	No
Lot	The dirt under the house	No, it is never depreciable

When you buy a furnished home, the purchase price is one number. A cost segregation study is the engineering based report identifying which portion of that price belongs in each recovery period, so the shorter lives, and the bonus depreciation, can be claimed. Without one, most of the depreciable basis typically sits in the building. Furnishings you purchased separately after closing are already short life business assets with their own receipts.

Used property can qualify

Bonus depreciation is not limited to new items, and the original use does not have to begin with you. Under Section 168(k)(2)(E), used property can qualify if you did not use it previously and the purchase meets the Section 179(d) rules (for example, it is not bought from a related party). The rules look back five calendar years for prior use. That matters because almost every STR purchase is a used home with used components. Property received as a gift or inheritance generally does not meet the purchase requirement.

Qualified improvement property and the 39 year question

Qualified improvement property is an improvement to the interior of a building that is nonresidential real property, made after the building was first placed in service. It is 15 year property, so it is bonus eligible. It excludes enlargements, elevators and escalators, and the internal structural framework.

Whether that helps an STR owner depends on how the building is classified. The tax code defines residential rental property using "dwelling units," and a dwelling unit excludes units in a hotel, motel, or other establishment where more than half the units are used on a transient basis. Many CPAs treat a short term rental with an average stay of 7 days or less as nonresidential (39 year) real property. If your CPA takes that position, interior upgrades made after the rental is placed in service may qualify. This is a judgment call to make with your tax professional, not a default.

How Bonus Depreciation Works With the STR Tax Loophole

Bonus depreciation decides how big the loss is when you begin operating. The passive activity rules decide whether that loss can offset your W-2 or business income. Rental losses are generally passive, but Treas. Reg. 1.469-1T(e)(3)(ii)(A) says an activity with an average customer stay of 7 days or less is not a rental activity. If you also meet a material participation test, the loss is non passive. Our STR tax loophole guide and our material participation guide walk through those tests.

Without the loophole, a big bonus depreciation loss on a rental property is usually suspended and carried forward until you have passive income or sell. With it, the same deduction can reduce taxable income right away. Two limits still apply: the excess business loss rule in Section 461(l) caps how much net business loss offsets other income annually (the excess carries forward), and basis and at risk rules apply.

This is also why who runs the property in the loss year matters. If a full service manager logs more hours than you, the material participation test can fail and the bonus depreciation loss becomes passive. Surge caps its first season role for loophole buyers to listing setup: the Surge Design launch, listing build, photos, copy, initial pricing setup, and periodic reviews of your hours log. You run guest messages, cleaner scheduling, restocking and vendor calls, and log every hour. Full service management is available from the second year, or once the loss is used.

Opting Out of Bonus Depreciation (and the 40% Option)

Bonus depreciation is the default. Publication 946 says that unless you elect out, you must take the 100% special depreciation allowance for qualified property acquired and placed in service after Jan. 19, 2025. The opt out rules come from Section 168(k)(7), which the new law did not change:

By category, per tax year. The choice covers an entire class of property (for example, all 5 year property) placed in service that tax year. You can keep bonus on 5 year assets and opt out for 15 year assets, but you cannot choose individual items.
How. Attach a statement to a timely filed return, including extensions, for the placed in service year, following the Form 4562 instructions. Publication 946 also allows an amended return within 6 months of the original due date if you filed on time without it.
Who. Each owner of the property makes it. If the rental sits in a partnership or S corporation, the entity makes it, not the partners.
It sticks. Once made, it can only be revoked with IRS consent.

Why would a taxpayer opt out? If the loss would be passive and suspended anyway, if your income is low now and high in coming years, or if the excess business loss cap would push most of the benefit forward, spreading depreciation over several years may fit your tax planning better. That flexibility is one of the most useful options in the bonus depreciation rules.

The 40% option is narrower than many articles suggest. The law lets taxpayers choose 40% instead of 100% only for qualified property placed in service during the first tax year ending after January 19, 2025. For a calendar year taxpayer, that is 2025. It is not a general option for 2026 purchases, so the 2026 choice for most STR buyers is 100% or opting out by category.

Bonus Depreciation vs Section 179 for Rental Property

Section 179 is the other way to immediately write off assets, and the new law raised it too. For tax years beginning in 2026, Publication 946 lists a maximum amount of $2,560,000, reduced once Section 179 property placed in service exceeds $4,090,000. The two tools work differently for rental owners:

	Bonus depreciation	Section 179
Dollar cap	None	$2,560,000 for 2026, with phase out
Can it create a loss?	Yes	No, limited to taxable income from the active conduct of a trade or business
Default or election	Default unless you opt out	You must elect it, item by item
Site improvements	Eligible (15 year)	Not eligible
Real property improvements	Qualified improvement property	Qualified real property: QIP plus the following improvements to nonresidential real property: roofs, heating, ventilation and air conditioning property, fire protection and alarm systems, and security systems

Publication 946 also notes that certain property noncorporate owners lease to others is excepted from Section 179, which adds a hurdle for rental owners filing as individuals. Publication 946 also says land improvements are not eligible for Section 179. Because the goal of the STR strategy is usually a first year loss, most buyers lean on bonus depreciation, and Section 179 becomes a tool for specific purchases. Both can be combined in the same tax year. See 26 U.S.C. 179 and ask your CPA which mix makes sense.

A 2026 Timeline for Short Term Rental Buyers

Making the most of 100% bonus depreciation takes planning across the business, not just at filing time. The purchase, the launch and your hours log all have to line up in the same year.

Underwrite the deal on cash flow first. A tax break does not fix a rental that loses money. Check revenue, stay length (you need a 7 day or less average for the loophole), and local rules. A profitable property makes the tax savings a bonus, not the whole model.
Look at the building share. The lot is not depreciable, so a higher building and contents share means a bigger depreciable basis. The county appraisal district in Texas, or the county property appraiser in Florida, shows lot and improvement values as a starting point.
Sign and close early enough to launch. Leave time to furnish, photograph, and list so you can place the home in service before December 31.
Document when the rental was placed in service. Save the listing live day, open calendar, photos, and first bookings.
Order the cost segregation study so it is ready before filing, and keep furnishing and equipment receipts separate.
Decide on elections with your CPA before the return is filed, since opting out happens on the return.

Recapture: The Cost of the Deduction

Bonus depreciation deductions reduce your basis. When you sell, gain tied to depreciated personal property is generally recaptured as ordinary income under Section 1245. That makes 100% bonus depreciation a timing benefit: large deductions now in exchange for tax later, unless you defer it with a 1031 exchange or hold long enough for the time value of the deduction to matter. Plan the exit before you buy.

Quick Answers: 100% Bonus Depreciation for STR Owners

Who benefits most from 100% bonus depreciation? High income W-2 earners and business owners who qualify for the short term rental loophole, since the bonus depreciation deductions can offset active income. Real estate investors whose losses stay passive still get the tax benefit, just later, when the suspended loss is released. The impact depends on your bracket, the price, and how much of the purchase is short life property.

Do I need to be a business to qualify? To qualify, the property has to be used in a trade or business or held for the production of income. A short term rental operated for profit generally fits. Personal use days reduce what you can deduct.

Does it apply to vehicles? Certain vehicles used for the rental business can be bonus eligible, but they are listed property: Publication 946 requires more than 50% qualified business use to claim the allowance, and passenger cars have their own dollar limits. Track business purposes versus personal purposes in a mileage log.

What about state taxes? Some states do not follow federal bonus depreciation. Texas and Florida have no state personal income tax, so for individual owners there the planning is federal.

Can I convert my own home? The rules allow bonus depreciation in the year property acquired for personal use is converted to business use, if the acquisition timing and other requirements are met. The depreciable basis on conversion is the lower of fair market value or adjusted basis. Your CPA should run this one carefully.

What if I already filed without a cost segregation study? A CPA may be able to catch up missed depreciation through an accounting method change on Form 3115 rather than amending. Ask before you assume those deductions are lost.

Where do I claim bonus depreciation? On Form 4562, Depreciation and Amortization, filed with your return for the placed in service year.

Do future changes matter? Congress has changed bonus depreciation before, including in the 2017 and 2025 tax laws. Current law has no sunset, but it is wise to review the rules each filing season and keep an eye on updated IRS guidance, since the final rules from Notice 2026-11 are still expected.

From the People Who Find the Property

Tax firms explain the rules. Surge works on the other side of the deal, helping buyers find, finance and launch a short term rental that can be placed in service on time:

Brokerage: Surge Investment Realty helps buyers find short term rental properties in Texas, including Houston, Austin, San Antonio and Dallas. Florida buyers are connected with licensed partner brokerages in each city.
Data: our revenue data and the Surge Score show expected bookings and stay length before you make an offer.
Lending: Surge Lending is a loan broker for DSCR and investor loans.
Design: Surge Design furnishes and launches the rental so it is ready and available for guests before your deadline.

Buying in Texas? Talk to Surge's STR brokerage team. Buying in Florida? Join the buyer list on our Orlando, Fort Lauderdale or Panama City Beach market pages. Need financing? See Surge Lending.

100% Bonus Depreciation FAQ

Is bonus depreciation 100% in 2026?

Yes, for qualified property bought after Jan. 19, 2025 and placed in service in 2026. Property acquired under a binding contract before January 20, 2025 stays on the old phase down, which would be 20% if placed in service in 2026.

Does 100% bonus depreciation apply to a short term rental?

Yes. OBBBA bonus depreciation on a short term rental applies to the 5, 7 and 15 year assets in it. Not to the building structure or the lot.

Is 100% bonus depreciation permanent?

Under current law, yes. The 2025 act removed the sunset. Congress could make changes again.

Do I need a cost segregation study?

Not to claim bonus depreciation on furnishings you buy separately. To find the short life assets inside the purchase price of the home, a study is the standard method.

Can I take bonus depreciation on some assets and not others?

Only by category. You can opt out for an entire group, such as all 15 year property, for that tax year.

More in this series: compare real estate professional status vs the STR loophole, and check what a cost segregation study costs and when it pays for itself.

100% Bonus Depreciation in 2026: The Short Term Rental Buyer's Guide