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

Pennsylvania is home to the Pocono Mountains — one of the most established STR cabin markets in the Northeast — as well as urban STR activity in Philadelphia and Pittsburgh. The state has a relatively low 3.07% flat income tax but decouples entirely from federal bonus depreciation, requiring straight-line depreciation on Pennsylvania state returns. This is a critical planning issue for PA investors using cost segregation.

Pennsylvania State Income Tax on Rental Income

Pennsylvania's 3.07% flat personal income tax applies to net rental income. While the rate is lower than most Northeast states, the non-conformity to federal depreciation methods means the effective Pennsylvania tax burden is higher than the headline rate suggests for investors who rely on first-year bonus depreciation to reduce federal taxable income.

Pennsylvania's Bonus Depreciation Non-Conformity

Pennsylvania requires investors to use straight-line depreciation on their state returns, regardless of the federal method elected. When you take 100% bonus depreciation on $120,000 of 5-year assets under MACRS on your federal return, you must add back that entire deduction on your PA return and instead deduct straight-line amounts — roughly $24,000/year for 5-year property over 5 years, or $20,000/year for 5-year property over 6 years depending on the convention used.

The result is that in year one, your PA taxable income is significantly higher than your federal taxable income. Over the full asset life, you recover the same total deductions — but the timing disadvantage is most pronounced in the year of acquisition. At 3.07%, the additional PA tax in year one on a typical cost seg study might be $3,000–$5,000 — recovered over subsequent years through larger PA deductions than federal deductions.

Pennsylvania Hotel Taxes by Market

The Pocono Mountains STR Market

The Pocono Mountains of northeastern Pennsylvania represent the closest major mountain vacation destination to the New York City metro area (90–120 minutes). The Poconos' STR market includes lakefront cabins, ski resort properties (Camelback, Big Boulder, Jack Frost Mountain), and year-round resort communities. Demand is driven primarily by New York City, Northern New Jersey, and Philadelphia-area travelers.

Pocono properties range from modest lake cottages ($150,000–$300,000) to premium lakefront homes and ski-in properties ($500,000–$1.5M+). The market is genuinely four-season — skiing in winter, lake activities in summer, foliage in fall, and resort and outdoor recreation in spring. Properties with lake access or ski proximity command the strongest revenue.

Philadelphia and Pittsburgh: Urban STR Markets

Philadelphia's STR market is event-driven, with strong demand around sports events, concerts, conventions, and historic tourism (Independence Hall, the Liberty Bell, the Philadelphia Museum of Art). Philadelphia's hotel tax is among the highest in Pennsylvania at approximately 14.5% combined, but this is borne by guests, not investors. Pittsburgh's urban STR market is smaller but growing, anchored by Carnegie Mellon University, UPMC, and the city's revitalized neighborhoods.

Cost Segregation in Pennsylvania: Federal Benefits Intact

Despite the Pennsylvania straight-line requirement, cost segregation remains powerful for PA investors because the full federal benefit is unchanged. A $500,000 Pocono lakefront property with $130,000 in cost seg deductions at 37% federal generates $48,100 in year-one federal savings. The PA timing cost at 3.07% — paying tax on deferred PA deductions — is roughly $3,500–$4,500 in year one, recovered over the asset lives.