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OBBBA 100% Bonus Depreciation for STRs in 2026
OBBBA (Public Law 119-21, July 4, 2025): 100% bonus dep permanent for property after Jan 19, 2025. Cost seg identifies 20–35% of purchase price as 5/15-year assets (fully deductible year one). $600K purchase → ~$144K bonus dep → ~$53K tax savings at 37% with STR loophole. Recapture at sale: 25% on ALL depreciation taken. Best exits: 1031 (defers all) or hold-to-death (step-up eliminates all). Own Luxury Homes® 12-Point Agent Integrity Audit™ — bonus dep + recapture modeled before every offer.
OBBBA 100% Bonus Depreciation for STRs: The Year-One Upside and the Recapture Trap at Sale
The One Big Beautiful Bill Act, signed July 4, 2025 (Public Law 119-21), permanently restored 100% first-year bonus depreciation for qualified property placed in service after January 19, 2025. For STR investors, this is the most significant tax change in a decade. It means a buyer who acquires an STR in 2026 and performs a cost segregation study can potentially deduct a large portion of the purchase price in year one. Every guide covering this law talks about the benefit. Almost none of them adequately explain what happens when you sell. This page covers both.
What the OBBBA Actually Changed
| Year | Bonus Depreciation Rate (Pre-OBBBA) | Bonus Depreciation Rate (Post-OBBBA) | |||||||
|---|---|---|---|---|---|---|---|---|---|
| 2022 | 100% | 100% (OBBBA retroactively confirmed) | |||||||
| 2023 | 80% | 100% for property placed in service after Jan 19, 2025 | |||||||
| 2024 | 60% | 100% | |||||||
| 2025 (after Jan 19) | 40% (old law) | 100% (OBBBA) | |||||||
| 2026 and beyond | 20% then 0% (old law) | 100% permanently | |||||||
| The OBBBA ended the phase-out schedule that would have eliminated bonus depreciation by 2027. The 100% rate is now permanent for qualified property, including STR personal property and cost-segregated structural components with useful lives of 20 years or less. | |||||||||
How Cost Segregation Unlocks Bonus Depreciation for STRs
A residential STR is normally depreciated over 27.5 years (the standard residential rental schedule). Bonus depreciation applies only to assets with shorter useful lives — 5, 7, or 15 years. A cost segregation study reclassifies components of the building from 27.5-year property into shorter-life categories:
| Asset Category | Useful Life | Bonus Dep Eligible? | Examples | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Personal property (5-year) | 5 years | Yes — 100% | Furniture, appliances, carpeting, fixtures, smart home devices | ||||||
| Land improvements (15-year) | 15 years | Yes — 100% | Driveway, landscaping, fencing, outdoor lighting, pool deck | ||||||
| Structural components (27.5-year) | 27.5 years | No (straight-line only) | Roof, foundation, walls, windows, HVAC if integral to structure | ||||||
| Land | N/A (non-depreciable) | No | Land value; must be allocated out of purchase price | ||||||
| A cost segregation study typically identifies 20-35% of an STR's purchase price as 5-year or 15-year property eligible for immediate bonus depreciation. On a $600,000 purchase with 25% allocated to shorter-life assets, $150,000 can be deducted in year one. | |||||||||
The Year-One Math: A Worked Example
| Line Item | Amount | Notes | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Purchase price | $600,000 | — | |||||||
| Less: land value (20%) | −$120,000 | Land is not depreciable | |||||||
| Depreciable basis | $480,000 | — | |||||||
| 5-year property (cost seg) | $96,000 (20% of $480K) | Furniture, fixtures, appliances | |||||||
| 15-year property (cost seg) | $48,000 (10% of $480K) | Landscaping, driveway, outdoor amenities | |||||||
| 27.5-year property (remainder) | $336,000 (70% of $480K) | Structure; no bonus dep | |||||||
| Year-one bonus depreciation | $144,000 ($96K + $48K) | 100% of 5+15 year property in year one | |||||||
| Year-one standard depreciation (27.5yr) | $12,218 ($336K ÷ 27.5) | Pro-rated for partial year | |||||||
| Total year-one depreciation deduction | ~$156,000 | Before STR loophole loss calculation | |||||||
| If the investor materially participates (500+ hours) and the STR loophole applies, this $156,000 deduction can offset ordinary income at the investor's marginal tax rate. At 37%, that is ~$57,720 in tax savings in year one. | |||||||||
The Recapture Trap: What Happens When You Sell
| Sale Scenario | Capital Gains Tax | Recapture Tax | Total Tax at Sale | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Sell after 1 year ($150K gain above basis) | $22,500 (15% LTCG) | $39,000 (25% recapture) | $61,500 | ||||||
| Sell after 5 years ($250K gain above basis) | $37,500 (15% LTCG) | $39,000 (25% recapture) | $76,500 | ||||||
| 1031 exchange into replacement property | $0 deferred | $0 deferred | $0 at sale (all deferred) | ||||||
| Hold until death; heirs inherit | $0 (stepped-up basis) | $0 (recapture eliminated at death) | $0 (most tax-efficient exit) | ||||||
| The 1031 exchange defers both capital gains and recapture. Holding until death with a stepped-up basis eliminates both entirely. These are the two most tax-efficient exits for STRs where significant bonus depreciation has been taken. | |||||||||
“I run the recapture math for every STR buyer before they make an offer. The bonus depreciation in year one is a real benefit — the time value of $57,000 in avoided tax is significant. But if they plan to sell in three years, they need to know the $39,000 recapture bill is coming. If they plan to hold long-term or do a 1031 out, the recapture is deferred indefinitely. The exit plan determines whether the bonus dep is as valuable as it looks. Know your exit before you take the depreciation.”
— Ryan Brown, Principal Broker & CEO, Own Luxury Homes®
What is the OBBBA bonus depreciation for STRs?
The One Big Beautiful Bill Act (July 4, 2025) permanently restored 100% first-year bonus depreciation for qualified property placed in service after January 19, 2025. For STR buyers who perform a cost segregation study, the 5-year and 15-year components of the property (furniture, fixtures, land improvements) can be fully deducted in year one. Typically 20–35% of purchase price is accelerable.
What is depreciation recapture when selling an STR?
Section 1250: all depreciation taken on an STR is recaptured and taxed at 25% when you sell. This applies to bonus depreciation taken under OBBBA. On $150,000 of first-year bonus depreciation: $37,500 in recapture tax at sale, separate from and in addition to capital gains tax on appreciation.
How do I avoid depreciation recapture on an STR?
Two strategies: (1) 1031 exchange into a replacement property — defers both capital gains and recapture indefinitely. (2) Hold until death — heirs receive a stepped-up basis that eliminates embedded gains and recapture. There is no way to avoid recapture on an outright sale.
Is a cost segregation study worth it for an STR?
Generally yes for properties above $300,000 in purchase price. Cost segregation studies typically cost $3,000–8,000 and identify 20–35% of purchase price in accelerable depreciation. At 37% marginal rate with STR loophole treatment, the year-one tax savings usually exceed the study cost by 10–20×. Factor in the recapture at sale before deciding.
Own Luxury Homes® — STR transaction specialists who model both the bonus dep benefit and the recapture cost before any offer. 12-Point Agent Integrity Audit™. Talk to an STR transaction specialist ›
"The introduction Own Luxury Homes® makes is to a specialist with documented closing history in your specific market — not the county, not the metro, the submarket you're actually selling or buying in. That's the standard we verify before your name goes anywhere."
— Ryan Brown, Principal Broker & CEO, Own Luxury Homes® (FL License BK3626873)