What the OBBBA Changed and Why It Matters Now

Before July 4, 2025, STR operators faced a compressing depreciation window. The Tax Cuts and Jobs Act of 2017 had established 100% bonus depreciation through 2022, then set a declining phasedown: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% in 2027.

By 2025, the rate had fallen to 40%. An operator doing a cost segregation study on a property purchased in 2025 and identifying $125,000 in 5-year and 15-year components could deduct only $50,000 in year one — not the full $125,000. The remaining $75,000 would depreciate over the applicable 5-year or 15-year schedule.

The OBBBA eliminated that phasedown entirely. The One Big Beautiful Bill Act permanently reinstated 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025. For STR operators, the practical effect is immediate and significant: every dollar of qualified personal property and land improvements identified in a cost segregation study can be deducted entirely in the year the property is placed in service.

The Critical Date: What “After January 19, 2025” Means

The determining factor is the acquisition date, not the placed-in-service date. Property is deemed acquired on the date a binding written contract was entered — not the closing date. This matters for operators who signed a purchase contract in late 2024 or early January 2025 but closed after January 19.

OBBBA Bonus Depreciation Eligibility:

Property acquired AFTER January 19, 2025:

  → 100% bonus depreciation (permanent, no sunset)

  → Must also be placed in service after January 19, 2025

Property acquired ON OR BEFORE January 19, 2025:

  → TCJA phasedown rates apply based on placed-in-service date

  → 40% if placed in service in 2025

  → 20% if placed in service in 2026

  → 0% if placed in service in 2027 or later

⚠️ Transitional Election: For property placed in service during their first tax year ending after January 19, 2025, taxpayers may elect to apply the 40% rate instead of the 100% rate. Most STR operators will not want this election — it reduces the year-one deduction — but it exists for situations where the additional loss in a particular tax year cannot be absorbed.

What Qualifies for 100% Bonus Depreciation Under the OBBBA

5-Year MACRS Personal Property

5-Year Personal Property — Common STR Examples:

  → Furniture (beds, sofas, chairs, tables, dressers)

  → Appliances (refrigerator, dishwasher, washer/dryer, range)

  → Carpeting and specialty flooring

  → Certain fixtures and decorative lighting

  → Electronics (TVs, smart home devices, security cameras)

  → Specialized electrical components serving personal property

7-Year MACRS Personal Property

7-Year Personal Property — STR Examples:

  → Commercial-grade HVAC components (in some configurations)

  → Certain specialized equipment

  → Office furniture in dedicated management space

15-Year MACRS Land Improvements

15-Year Land Improvements — Common STR Examples:

  → Driveways and parking areas

  → Landscaping and outdoor plantings

  → Fencing and outdoor lighting

  → Pools and hot tubs

  → Patios, walkways, and outdoor structures

  → Retaining walls

Qualified Improvement Property (QIP)

QIP is interior improvement to a nonresidential building made after the building is placed in service. Under the OBBBA’s restoration, QIP now qualifies for 100% bonus depreciation. This is relevant for STR operators whose CPA has determined their property is nonresidential 39-year property — subsequent interior renovations qualify as QIP and are fully expensable in year one. See the cost segregation article for full discussion of the 27.5 vs. 39-year question.

What Does NOT Qualify

The building structure itself — the 27.5-year (or 39-year) component — does not qualify for bonus depreciation regardless of the OBBBA. Land itself is never depreciable.

CPA Note — What “Residential Cost Segregation” Actually Means: A cost segregation study on a 27.5-year residential STR legally identifies and extracts the embedded 5-year personal property components and 15-year land improvement components from the residential shell. Those extracted sub-assets then independently qualify for 100% bonus depreciation under the OBBBA’s standard asset class rules. The residential building shell itself remains strictly ineligible for bonus depreciation. The study is the tool that unlocks the qualifying components — not a mechanism that converts the building itself into bonus-eligible property.

The Full Math: Before and After the OBBBA

Assumptions:

Purchase price: $500,000 | Land (20%): $100,000

Depreciable basis: $400,000

Cost seg identifies: $90,000 five-year, $35,000 fifteen-year

Remaining 27.5-year building: $275,000

Scenario A — No Cost Segregation (27.5-Year Straight Line):

  Year-one deduction: $400,000 ÷ 27.5 = $14,545

Scenario B — Cost Segregation at 60% (Pre-OBBBA 2024 Rate):

  5-year property:    $90,000 × 60% = $54,000

  15-year property:   $35,000 × 60% = $21,000

  27.5-year building: $275,000 ÷ 27.5 = $10,000

  ────────────────────────────────────────────

  Year-one deduction: $85,000

Scenario C — Cost Segregation at 100% (OBBBA 2026 Rate):

  5-year property:    $90,000 × 100% = $90,000

  15-year property:   $35,000 × 100% = $35,000

  27.5-year building: $275,000 ÷ 27.5 = $10,000

  ────────────────────────────────────────────

  Year-one deduction: $135,000

Year-One Tax Impact Comparison (32% combined bracket):

  Scenario A (No cost seg):           $14,545 × 32% = $4,654 tax savings

  Scenario B (Cost seg, 60% bonus):   $85,000 × 32% = $27,200 tax savings

  Scenario C (Cost seg, 100% bonus): $135,000 × 32% = $43,200 tax savings

  OBBBA advantage over Scenario B:    $16,000 additional tax savings in year one

  OBBBA advantage over Scenario A:    $38,546 additional tax savings in year one

The OBBBA and Section 179: How They Interact

Feature	Bonus Depreciation §168(k)	Section 179
2026 rate	100% (permanent, OBBBA)	100% up to $2.5M limit
Annual dollar limit	None	$2,500,000 (2026)
Phaseout threshold	None	$4,000,000 of placed-in-service property
Can create a net loss?	Yes	No — limited to taxable income
Applies to used property?	Yes (if new to taxpayer)	Yes

For most STR operators, bonus depreciation is the more powerful tool because it can generate a net loss — which, combined with non-passive STR treatment through the average rental period test and material participation, can offset W-2 income directly. Section 179 cannot create a loss and cannot be used if the business has no taxable income.

The State Conformity Warning

This is the detail that most online OBBBA coverage skips — and it can materially reduce the actual tax benefit for operators in high-income states. States follow different approaches in adopting conformity to the IRC. Some states conform to the current IRC automatically; others — including Illinois, New Jersey, New York, and Pennsylvania — have historically decoupled from federal bonus depreciation.

What “decoupled” means in practice: your federal return reflects 100% bonus depreciation, but your state return may require you to depreciate those same assets over their normal MACRS lives — significantly more state taxable income in year one.

Before projecting your full after-tax benefit, ask your CPA explicitly: does my state conform to federal bonus depreciation under the OBBBA? If not, what is the state-level depreciation treatment and what does my net after-tax benefit look like on a combined federal and state basis?

What This Means for STR Operators Who Purchased Before January 19, 2025

For properties acquired before January 19, 2025 that haven’t had a cost segregation study: You may still be able to do a look-back study and file a Form 3115 to claim missed depreciation — but the applicable bonus depreciation rates are the TCJA rates in effect in the year the property was placed in service, not the OBBBA rate. The Form 3115 look-back process is covered in full in the cost segregation article.

For new capital expenditures on existing properties: Individual asset purchases made after January 19, 2025 qualify for 100% bonus depreciation at the time of purchase, regardless of when the underlying property was acquired. The acquisition date that matters is the date you acquire the specific qualifying asset, not the date you acquired the real property.

Example — New Furniture on Pre-OBBBA Property:

  Property purchased: December 2023

  New sofa purchased: March 2026 (cost: $3,500)

  → Sofa acquired after January 19, 2025

  → Qualifies for 100% bonus depreciation in 2026

  → Full $3,500 deductible in 2026 tax year

  → Property acquisition date is irrelevant to the sofa's treatment

The Recapture Reminder

The OBBBA changed the bonus depreciation rate. It did not change the recapture rules at sale.

Section 1245 recapture applies to 5-year and 7-year personal property — recaptured as ordinary income at your marginal rate (up to 37%) when the property is sold.

Section 1250 recapture applies to 15-year land improvements — capped at a maximum rate of 25%, not ordinary income rates. This is a meaningful tax planning advantage for properties with significant exterior site work: the recapture rate on those assets is capped 7–12 percentage points below the ordinary income recapture rate that applies to personal property.

The strategy is most powerful for operators with multi-year hold periods or those planning to defer recapture through a 1031 exchange.

📘 Included in the STR Financial Bible: Use the 02_STR_Deal_Analysis_Spreadsheet.xlsx to model your first-year depreciation deduction under the OBBBA against your projected recapture at various hold periods. Run both 27.5-year baseline and post-cost-segregation scenarios before making the study decision.

Frequently Asked Questions

Is 100% bonus depreciation actually permanent now, or will it phase out again?

The OBBBA makes 100% bonus depreciation a so-called permanent provision of the Code with no built-in expiration date. “Permanent” in tax legislation means it has no scheduled sunset — not that Congress cannot change it in the future. Unlike the TCJA’s 100% rate, which had an explicit sunset, the OBBBA’s rate would require affirmative Congressional action to reverse.

I purchased my STR in 2024 under a contract signed in October 2024. Do I get 100% bonus depreciation?

No. The acquisition date under the contract rules is October 2024 — before January 19, 2025. TCJA phasedown rates apply. If the property was placed in service in 2024, the applicable rate is 60%. If placed in service in 2025, the rate is 40%. If placed in service in 2026, the rate is 20%.

I’m purchasing a new STR in 2026. What bonus depreciation rate applies to the cost-segregated components?

If you acquire the property after January 19, 2025 (which a 2026 acquisition necessarily satisfies) and place it in service after that date, 100% bonus depreciation applies to all qualifying 5-year, 7-year, and 15-year components identified in a cost segregation study.

Does the OBBBA help if my STR losses are passive?

The OBBBA expanded the deduction available; it did not change the passive activity rules. If your STR generates a large loss from 100% bonus depreciation and you have not cleared the average rental period test or materially participated, that loss is passive and suspended — not currently deductible against W-2 income. The OBBBA creates a larger potential loss; the STR loophole analysis determines whether you can use it now.

Can I take 100% bonus depreciation on furnishings I’m buying for an STR I’ve owned for three years?

Yes. The bonus depreciation eligibility is determined by the acquisition date of the specific asset, not the acquisition date of the real property. New furnishings acquired after January 19, 2025 for a property purchased in 2022 qualify for 100% bonus depreciation in the year the furnishings are placed in service.

Does my state follow the OBBBA’s 100% rate?

It depends on your state. States that conform to the current IRC automatically adopt the OBBBA’s bonus depreciation changes. States that have historically decoupled — including New York, New Jersey, Illinois, and Pennsylvania — do not. This is a state-specific question your CPA needs to answer before you finalize your year-one deduction projections.

Matt Nunn, CPA has been in public accounting since 2006. Builder’s Finance Co publishes financial education content for short-term rental operators. All tax and accounting claims in this article reflect the author’s professional interpretation and should not be relied upon as tax advice for your specific situation. Consult your CPA before making tax elections or strategic decisions. Pursuant to IRS Circular 230, any tax advice contained in this communication was not intended or written to be used, and cannot be used, for the purpose of avoiding tax-related penalties.