The One Big Beautiful Bill Changed Everything

If you've worked hard - and we mean really hard to build income - watching a significant chunk disappear to taxes every April can feel like a gut punch. We get it! After 22 years of military service, we've learned a thing or two about discipline, sacrifice, and the frustration of seeing your earnings erode.  More importantly, we've seen where some of your hard-earned tax dollars end up.

But before we dive in to the good news, we want to ensure everyone understands that this article is meant for informational purposes only and does not constitute tax, legal, or investment advice. Always consult a qualified CPA or tax professional before making financial decisions.

You've probably heard whispers about the "short-term rental tax loophole." Maybe a colleague at the hospital mentioned it. Perhaps a fellow attorney brought it up at a conference. Or maybe you stumbled across it while researching real estate investing.

Here's the truth: the short-term rental (STR) tax strategy isn't some shady workaround. It's a legitimate, IRS-recognized provision that allows property owners to offset high W-2 income with real estate losses, without needing to quit your day job or become a full-time real estate professional. And in 2025, this strategy just got significantly more powerful.

The One Big Beautiful Bill Changed Everything

In July 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law, and it brought a game-changing provision back to life: 100% bonus depreciation.

Before this legislation, bonus depreciation was phasing out. It had dropped to 60% in 2024 and was scheduled to fall to 40% in 2025, 20% in 2026, and disappear entirely by 2027. Many investors were watching the clock, wondering if the golden era of real estate tax benefits was ending.

The OBBBA reversed that trajectory entirely.

For qualified property acquired and placed in service after January 19, 2025, bonus depreciation is now restored to 100%, and it's permanent. This isn't a temporary extension. This is a fundamental change to the tax code that creates long-term planning opportunities for investors. For short-term rental owners, the timing couldn't be better.

How the STR Tax Strategy Actually Works

Let's break this down in plain terms.

Normally, the IRS classifies rental income as "passive." This means if your rental property generates losses through depreciation, repairs, and other expenses, those losses can only offset other passive income, not your W-2 wages or business earnings. But short-term rentals operate under different rules.

When your average guest stay is seven days or less, think Airbnb, VRBO, and vacation rentals in general, the IRS doesn't classify your property as a "rental activity" under Section 469. Instead, it's treated as a trade or business.

This distinction is crucial. When you materially participate in that business (more on this shortly), any losses become "non-passive" and can directly offset your ordinary income. That includes your salary, bonuses, K-1 distributions, and other active income sources. The result? High-income earners, including physicians, attorneys, executives, and business owners, can legally reduce their tax liability by tens of thousands of dollars, sometimes in just the first year of ownership.

The Material Participation Requirement

To unlock these benefits, you need to demonstrate that you're actively involved in running your STR. The IRS provides seven tests for material participation, and you only need to meet one.

The three most commonly used tests are spending more than 500 hours annually on the business, performing substantially all the work yourself, or spending more than 100 hours on the business while ensuring no one else, including contractors, spends more time than you do.

What counts toward your hours? Guest communication, booking management, coordinating turnovers, pricing optimization, maintenance oversight, cleaning coordination, and property improvements all qualify. If you're hands-on with your short-term rental, you may already be meeting these requirements.

One critical note: if you hire a full-service property manager who handles everything, you'll likely disqualify yourself from material participation. However, working with a management company that keeps you involved in key decisions can actually help you meet the requirements while freeing up your time.

Why Bonus Depreciation Matters So Much

Here's where the 2025 tax changes become transformative:

When you purchase a rental property, the IRS allows you to depreciate its value over time, typically 39 years for short-term rentals since they're classified as nonresidential property. That's a slow drip of deductions spread across decades. But with a cost segregation study, you can reclassify portions of your property, including furniture, appliances, carpeting, certain fixtures, landscaping, and building components, into shorter depreciation categories of 5, 7, or 15 years.

Now combine that with 100% bonus depreciation! Instead of waiting years to claim those deductions, you can write off the entire value of those accelerated assets in year one. For a $500,000 property, a cost segregation study might identify $100,000 to $150,000 in assets eligible for immediate deduction. At a 37% tax bracket, that translates to $37,000 to $55,000 in tax savings, in a single year.

And because you're materially participating in a short-term rental, those losses aren't trapped in passive activity limitations. They directly reduce your taxable income from your W-2 or business earnings.

Protecting Yourself Against Economic Uncertainty

We're not going to sugarcoat it: the economic landscape heading into 2026 carries real uncertainty. Inflation, interest rate fluctuations, and market volatility all create risk. Real estate, particularly short-term rentals in strong markets like Savannah, offers something increasingly rare: a tangible asset that can generate cash flow, appreciate over time, and provide meaningful tax benefits.

Unlike stocks or bonds, a vacation rental is something you can see, touch, and improve. It's an asset that works for you in multiple ways simultaneously, producing income while reducing your tax burden and building long-term equity. The STR tax strategy isn't just about saving money this year. It's about positioning yourself for financial resilience when the unexpected happens.

Why Working With the Right Team Matters

Here's what we've learned building Stay Here over the past seven years: navigating this strategy successfully requires expertise in multiple areas, including real estate acquisition, hospitality operations, tax planning, and local market knowledge.

You need a real estate-focused CPA who understands the nuances of cost segregation, material participation documentation, and Schedule C versus Schedule E reporting. This is not the time for a generalist tax preparer. The details matter, and mistakes can be costly.

You also benefit from working with people who have actually done this themselves. At Stay Here, we're not just managers. We're investors who've used this exact strategy consistently to build our own portfolio of profitable properties in Savannah. We've made the mistakes so you don't have to.

We offer management services to help you meet material participation requirements without sacrificing your weekends. We also work with investors as partners on new acquisitions and provide consulting for those who want to go it alone but need guidance on market selection, property setup, and operational optimization.

What You Should Do Next

If you're a high-income earner feeling the weight of April 15th every year, the short-term rental tax strategy deserves a serious look. But don't take action based on a blog post, including this one.

First, schedule a conversation with a real estate-focused CPA. Ask specifically about material participation, cost segregation studies, and how the One Big Beautiful Bill affects your situation. Come prepared with questions about documentation requirements and audit risk.

Second, educate yourself on your target market. Savannah offers unique advantages, including strong tourism, a walkable historic district, year-round demand, and relatively accessible entry points compared to coastal markets in Florida or California.

Third, consider whether you want to invest solo, partner with experienced operators, or start with a managed property to learn the ropes.

At Stay Here, we've helped investors at every stage of this journey. Whether you need someone to handle day-to-day operations while you focus on your career, or you're looking for partnership opportunities in Savannah's short-term rental market, we're here to have that conversation.

Schedule a Consultation

Ready to explore how short-term rental investing could fit into your tax strategy and wealth-building goals? We'd love to hear from you.

Schedule a Consultation Call with the Carlos to discuss your situation, ask questions, and learn more about opportunities in the Savannah market.

Stay Here has built a profitable portfolio of short-term rentals in Savannah, GA over the past seven years, using the strategies discussed in this article. Our founders bring a level of professionalism forged over 22 years of military service and a commitment to helping investors navigate the short-term rental landscape with confidence.

* This article is for informational purposes only. Tax laws are complex and change frequently. Always consult with a qualified CPA or tax attorney before implementing any tax strategy.