Section 179 vs. Bonus Depreciation for Airbnb Furnishings: Which to Use First

When you purchase furnishings, appliances, or equipment for your Airbnb, you have two methods for taking an immediate first-year deduction: Section 179 expensing and bonus depreciation. Both result in a 100% deduction in year one under current law, but they operate differently, apply to different asset classes, have different limitations, and create different outcomes for net operating losses. For STR investors, choosing correctly matters.

The Key Differences Side by Side

The Critical Difference: Net Operating Losses

The most important distinction for STR investors is the income limitation on Section 179. Under IRC §179(b)(3), the Section 179 deduction cannot exceed the taxable income derived from the active conduct of any trade or business during the year. If your STR generates a net operating loss after other deductions, Section 179 cannot be used to increase that loss — the disallowed amount carries forward to future years.

Bonus depreciation has no income limitation. It can freely create or increase a net operating loss, which can then be carried forward to offset future income. For STR investors whose entire strategy is to generate a large current-year loss to offset W-2 income, bonus depreciation is the primary tool — not Section 179.

When Section 179 Is Useful for STR Investors

Despite being generally secondary to bonus depreciation for STR investors, Section 179 has specific use cases:

• Qualified Improvement Property (QIP): Interior improvements to existing nonresidential real property are eligible for Section 179 in some cases where bonus depreciation treatment may be more complex. QIP (15-year property under TCJA/OBBBA) is generally eligible for both, but Section 179 offers more flexibility on the deduction amount.
• High Section 179 spending in a business with strong income: If you have high trade or business income and want to control the exact dollar amount of your deduction, Section 179 lets you elect any amount up to the asset's cost.
• State tax planning: Some states that decouple from bonus depreciation still allow Section 179 up to a state-specific cap. Taking Section 179 instead of bonus depreciation on certain assets can produce state tax benefits that bonus depreciation would not.
• Property that doesn't qualify for bonus depreciation: If a specific asset doesn't meet the bonus depreciation requirements (e.g., certain listed property with business use below 50%), Section 179 may still apply.

OBBBA's Section 179 Expansion

OBBBA doubled the Section 179 maximum deduction to $2.5 million (up from the pre-OBBBA amount of approximately $1.16 million) with a phase-out starting at $4 million in qualifying property placed in service. For most individual STR investors with one or a few properties, these limits are not binding. But for investors with multiple properties or significant commercial real estate holdings, the expanded limits provide more flexibility.

The Practical Application for Furnished STRs

For most STR investors purchasing and fully furnishing a vacation rental, the recommended approach is:

1. Order a cost segregation study to identify all 5-year and 15-year property in the acquisition price.
2. Apply bonus depreciation to all qualifying reclassified assets — this generates the largest first-year deduction with no income limitation.
3. Apply bonus depreciation to separately purchased furnishings and appliances as well.
4. Consider Section 179 only if: (a) you have specific assets that don't qualify for bonus depreciation, (b) you're in a decoupled state and want state-level benefits, or (c) your CPA recommends it for specific tax planning reasons.