Bonus depreciation presents a significant opportunity for short-term rental investors. You can materially offset your W-2 income with losses generated by the depreciation, which is a key advantage for active Airbnb investors.
The Tax Cuts and Jobs Act (TCJA) of 2017 made it possible for Airbnb owners to take advantage of bonus depreciation. For Airbnb owners, this means that certain property improvements and purchases, such as furniture, appliances, and other short-lived components (those with a depreciable life of 20 years or less), qualify for bonus depreciation.
For a property to be considered eligible for bonus depreciation, you must:
- Limit personal use of the property to no more than 14 days per year or 10% of the total rental days, whichever is greater
- Average rental period is 7 days or less
- Spend 100+ hours managing your Airbnb property
Bonus Depreciation Changes Every Year
In 2024, bonus depreciation allows for a 60% deduction in the same year you put your Airbnb in service on eligible property components.
Bonus depreciation can only be claimed in the year the property or asset is placed in service (i.e., when it is ready and available to be rented out).
A cost segregation study allows you to reclassify parts of the property (like appliances, fixtures, and improvements) into categories eligible for shorter depreciation schedules, making them eligible for bonus depreciation.
For example, if you spend $1,000,000 on an Airbnb in Nashville and you hire a professional to perform a cost segregation study on the property. That professional allocates all of the components of the property into depreciable categories. That professional gives you the total bonus depreciable value of the property of $550,000+/-. You can take 60% of the depreciable value, or $330,000+/-, as a write down against your taxable income in the same year as you put the property into service.
After applying bonus depreciation, you can continue to depreciate the remaining 40% of the asset’s value over its useful life using the standard depreciation schedule.
* I am not a tax professional. I am simply an Airbnb specialist that has sold over 575 Airbnbs in Nashville, TN. Consult your tax professional to ensure you have completed the process.
