100% Bonus Depreciation Is Permanent: What the One Big Beautiful Bill Means for STR Investors

On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law. For short-term rental investors, one provision stands above the rest: the permanent reinstatement of 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025. After two years of declining bonus depreciation rates — 60% in 2024, 40% in early 2025 — the strategy is back at full power, and this time it's permanent.

What Bonus Depreciation Actually Is

Bonus depreciation (also called "additional first-year depreciation" or the §168(k) deduction) allows taxpayers to deduct the full cost of qualifying assets in the year they're placed in service, rather than over the asset's normal depreciation recovery period. Under MACRS, 5-year property would normally depreciate using the 200% declining balance method over 5 years. With bonus depreciation, the entire cost is deducted in year one.

For short-term rental investors combining cost segregation with bonus depreciation, this means that the 25–40% of a property's value reclassified to 5-, 7-, and 15-year asset classes is deducted entirely in the year of acquisition — not spread over 5 to 15 years.

The Phase-Down That Preceded OBBBA

The Tax Cuts and Jobs Act (TCJA) of 2017 introduced 100% bonus depreciation for qualifying property placed in service after September 27, 2017. But the TCJA built in a scheduled phase-down starting in 2023:

The phase-down had real consequences. An investor who bought a $600,000 STR in 2024 could immediately deduct only $90,000 of their $150,000 in reclassified assets (60%) — the remaining $60,000 had to depreciate over the regular MACRS schedule. OBBBA restored the full $150,000 immediate deduction — and made it permanent.

The January 19, 2025 Cutoff in Detail

"Placed in service" means the property is ready and available for its intended use — not necessarily actively rented on that date. A property that closed escrow on January 10 but was undergoing final repairs and not yet available for rental until February was placed in service in February, qualifying for 100% bonus depreciation.

Investors caught in the January 1–19 window have partially bifurcated depreciation: some components placed in service before January 20 get 40%, while any capital improvements made after January 20 get 100%. Cost segregation studies for these properties must account for the bifurcation carefully.

What Assets Qualify

Bonus depreciation applies to qualified property under IRC §168(k), which includes:

• 5-year MACRS property: Personal property with a 5-year recovery period — appliances, furniture, carpeting, decorative fixtures, electronics.
• 7-year MACRS property: Personal property with a 7-year recovery period.
• 15-year MACRS property: Land improvements — pools, patios, landscaping, driveways, fencing, outdoor lighting.
• Qualified improvement property (QIP): Interior improvements to nonresidential real property placed in service after the building was placed in service. Relevant for STR investors who renovate after acquisition.

The building structure itself (39-year property) does not qualify for bonus depreciation. This is why cost segregation is essential — without reclassifying components out of the 39-year class, there is nothing eligible for bonus depreciation beyond separately purchased furnishings.

The STR Impact: Real Numbers

For STR investors with the STR tax loophole, these deductions flow directly against W-2 income. The permanent restoration of 100% bonus depreciation restores the full power of the STR + cost seg + bonus depreciation stack that made 2018–2022 so attractive for real estate investors.

Opting Out of Bonus Depreciation

Bonus depreciation is applied automatically under §168(k) unless you elect out. Why would anyone opt out? If a large first-year deduction would create a net operating loss that you can't carry back or don't need immediately, spreading the deduction over the regular MACRS schedule may be preferable. Investors with low current-year income who expect higher income in future years sometimes opt out of bonus depreciation for specific asset classes. Discuss with your CPA whether bonus depreciation is optimal for your situation in the current tax year.