STR Tax Savings Calculator
Answer a few questions to see how much a short-term rental, a cost segregation study and bonus depreciation could lower your first-year taxes.
The share of the building's value (price minus land) that a cost segregation study moves into 5, 7 and 15 year property. Short-term rentals commonly land around 20% to 35%.
Furniture, decor, appliances, amenities like a hot tub or game room, and launch costs like photos and supplies.
Guest messages, cleaning coordination, maintenance, pricing and bookkeeping all count.
If you hire a full-service manager, the answer is usually no.
Adjust the assumptionsOptional
These defaults are typical for a short-term rental. Change them if you have better numbers.
Leave at 0% in Florida, Texas, Tennessee and other states with no income tax.
Revenue minus operating expenses and mortgage interest. Many STRs land near break even in Year 1. Use a negative number for a cash loss.
You don't have to find, finance, furnish, and manage a property to invest in real estate. You can invest passively with a team of experts. Schedule a call with our team to learn more.
Schedule a CallUpdated for 2026 tax rules
How the short-term rental tax strategy works
Rental real estate losses are normally passive, which means they can only offset income from other passive activities. Short-term rentals can be different. Under the IRS passive activity rules, a property where the average guest stay is 7 days or less is not treated as a rental activity. If you also materially participate in running it, the losses from that property can offset your W-2 or business income.
The losses usually come from depreciation, not from the property losing money. A cost segregation study moves part of the building into 5, 7 and 15 year property, and bonus depreciation lets you deduct those pieces in the first year. Together they can create a large paper loss in Year 1 even when the property has positive cash flow.
Example: with the default inputs above, a $1,000,000 short-term rental with $55,000 of furniture and setup produces about $313,000 of first-year deductions with a cost segregation study and 100% bonus depreciation, compared with about $66,000 without the study. For a married couple earning $600,000, that works out to roughly $90,000 in first-year tax savings.
The 3 things that have to line up
- Average stay of 7 days or less. Total nights booked divided by the number of stays for the year. Stays averaging 8 to 30 days can also qualify if you provide substantial services, which is a question for your CPA.
- Material participation. Most owners qualify by spending at least 100 hours on the property and more than any other person, including cleaners and managers, or by spending 500 hours or more. Investor-type work like reading statements usually does not count.
- Records. Keep a time log as you go: guest messages, cleaning coordination, maintenance, pricing and bookkeeping. If you are audited, the log is what proves participation.
Frequently asked questions
What is the short-term rental tax loophole?
It is the common name for the rule that a property with an average guest stay of 7 days or less is not a rental activity under the passive activity rules. If the owner materially participates, losses from the property, often created by depreciation, can offset other income like W-2 wages.
How much does cost segregation save on a short-term rental?
It depends on the price, the share of the building that qualifies as short-life property and your tax bracket. Studies on short-term rentals commonly reclassify around 20% to 35% of the building's value, on top of any furniture you add. With 100% bonus depreciation, that portion can be deducted in the first year. Use the calculator above with your own numbers.
Is 100% bonus depreciation available in 2026?
Under current law, 100% bonus depreciation applies to qualifying property acquired and placed in service after January 19, 2025. Confirm eligibility for your purchase with your CPA.
Do I qualify if I use a property manager?
Usually not under the 100 hour test, because a full-service manager and its cleaning team typically spend more hours on the property than the owner. Owners who self-manage, or who use a manager for limited tasks while handling guests and operations themselves, are more likely to qualify.
Is there a limit on how much loss can offset my W-2 income?
Yes. The excess business loss limit caps how much net business loss can offset other income in one year. For 2026 it is $256,000 for single filers and $512,000 for married couples filing jointly. Losses above the limit carry forward.
What happens when I sell?
Depreciation lowers your basis in the property. When you sell, part of the gain can be taxed as depreciation recapture: short-life property at ordinary income rates and the building portion at up to 25%. Plan the exit with your CPA, including options like a 1031 exchange.
Why is the building depreciated over 39 years?
Long-term rental homes are depreciated over 27.5 years. Short-term rentals used on a transient basis are commonly depreciated over 39 years instead. Your CPA will confirm the right recovery period for your property.
More free investor tools
Let's continue the conversation
Book a call with our team to talk through your numbers and map out a plan to reach your real estate goals.
Schedule a Call