Short-Term Rental Taxes in Delaware: What Investors Need to Know in 2025

Delaware occupies an unusual position in the Northeast STR landscape: no state sales tax, full conformity to federal bonus depreciation, and a premium coastal STR market at Rehoboth Beach and the surrounding Sussex County beach towns. While the state's income tax tops out at a moderate 6.6%, the combination of no sales tax and full bonus dep conformity makes Delaware one of the more investor-friendly states in the Northeast region.

Delaware's No-Sales-Tax Advantage

Delaware is one of only five states with no state sales tax (alongside Montana, Oregon, New Hampshire, and Alaska). For STR investors, this means there is no additional layer of Delaware sales tax on rental revenue — unlike neighboring Maryland (6% state sales tax on lodging), New Jersey (6.625% sales tax), and Pennsylvania (6% hotel tax). Delaware does have a separate 8% lodging tax on short-term rentals, but the absence of a general sales tax layer simplifies the overall tax picture.

Delaware Bonus Depreciation Conformity

Delaware's conformity to federal bonus depreciation is a significant advantage compared to every other Northeast state covered in this guide except New Hampshire. When you take 100% bonus depreciation on cost segregation-identified assets on your federal return, the same deduction applies to your Delaware state return. This means cost segregation savings are stacked at both the federal and state level simultaneously.

Delaware Lodging Tax and Income Tax

Delaware Beach STR Markets

Rehoboth Beach: Delaware's largest and most developed beach town, often called the 'Nation's Summer Capital' given its historical popularity with DC government workers and diplomats. Rehoboth Beach draws a diverse mix of families, couples, LGBTQ+ travelers, and weekend beach seekers from the DC, Baltimore, and Philadelphia metro areas. The combination of Rehoboth's 1-mile Boardwalk, excellent dining scene, and relatively easy access makes it one of the most consistently-performing Mid-Atlantic beach markets.

Dewey Beach: Immediately south of Rehoboth, Dewey Beach is known for a younger demographic, beach bars, and a more party-oriented atmosphere. Properties in Dewey Beach tend to be smaller (the peninsula is narrow) and highly seasonal. Very strong June–August occupancy, with a younger average guest than Rehoboth.

Bethany Beach and Fenwick Island: South of Dewey, Bethany Beach is known as the 'Quiet Resorts' — a more family-oriented, less commercial atmosphere than Rehoboth or Dewey. Properties here tend to be larger single-family beach homes attracting families and multi-generational groups. Fenwick Island shares a border with Ocean City, Maryland, capturing some of that market's overflow.

Cost Segregation in Delaware: Combined Benefits

Delaware's full conformity to bonus depreciation combined with the 6.6% state income tax creates a clean combined benefit from cost segregation. For a $600,000 Rehoboth Beach property with $140,000 in cost seg deductions, the combined first-year benefit is: $51,800 federal (at 37%) + $9,240 Delaware state (at 6.6%) = $61,040 total first-year tax savings, against a study cost of $5,500–$8,500. The ROI on the cost segregation study itself is compelling in the year of purchase.