If you are weighing a vacation rental on 30A, the purchase math usually starts with nightly rates, occupancy, and HOA dues. But one of the biggest levers on your actual return is one many buyers underestimate: depreciation. For owners of short-term rentals, recent federal tax changes have made first-year deductions dramatically larger, and in the right circumstances those deductions can offset income from outside the rental itself. That combination is what people mean when they talk about short-term rental bonus depreciation. Before we go further, an important caveat: this article is educational only and is not tax, legal, or accounting advice. Stroop Group and Mark Stroop LLC are a real estate team, not tax advisors, and every situation is different. Treat everything here as a starting point for a conversation with a licensed CPA. With that said, let's dive in.
Why Depreciation Is a Powerful Tool for 30A Rental Owners
Residential rental property is normally depreciated over 27.5 years using the straight-line method, meaning you deduct a slice of the building's cost each year even though you never write a check for it. That makes depreciation a rare thing in tax: a real deduction with no annual cash outlay. On 30A, where purchase prices in communities like Rosemary Beach, Seaside, WaterColor, and Grayton Beach run high, even a routine depreciation deduction is meaningful. The limitation is timing. Land cannot be depreciated, and spreading the building's value across 27.5 years produces a fairly modest yearly number relative to the price you paid. The strategies below change that timing, pulling deductions forward instead of waiting decades to claim them.
What 100% Bonus Depreciation Means After the One Big Beautiful Bill
Bonus depreciation, formally the additional first-year depreciation deduction under Section 168(k), lets you deduct a large share of qualifying assets immediately rather than over their normal life. This rule changed substantially in 2025. Under the earlier Tax Cuts and Jobs Act, bonus depreciation had been phasing down year by year toward zero. The One Big Beautiful Bill Act (OBBBA), enacted in 2025, reversed that phase-down. According to the IRS, the law "provides a permanent 100-percent additional first year depreciation deduction for qualified property acquired... after January 19, 2025." The IRS issued interim guidance on the new rules in Notice 2026-11. National accounting firm BDO and Thomson Reuters both report the same threshold: qualifying property must be acquired and placed in service after January 19, 2025, to receive the full 100 percent, while property placed in service between January 1 and January 19, 2025, falls under a 40 percent rate. A transitional election also lets some taxpayers choose 40 percent (or 60 percent for certain long-production property) for their first tax year ending after that date. In plain terms, eligible components of your rental can now be fully written off in year one instead of over many years.
How a Cost Segregation Study Front-Loads Your Deductions
There is a catch: bonus depreciation applies to assets with a recovery period of 20 years or less, not to the 27.5-year building shell itself. That is where a cost segregation study comes in. A cost segregation study is an engineering-based analysis that breaks a property into its components and reclassifies eligible ones into shorter 5-, 7-, and 15-year recovery periods. Think appliances, certain flooring and cabinetry, and decorative lighting on the personal-property side, plus land improvements such as landscaping, driveways, and fencing. Cost segregation firms commonly report that 20 to 35 percent of a property's depreciable basis can be reclassified this way, with many citing 25 to 30 percent for short-term rentals. Pair that reclassification with 100 percent bonus depreciation and that entire portion can be deducted in the first year. On a high-priced 30A home, that can produce a very large first-year deduction. A quality study has a real cost and should be performed by a qualified firm, so it is worth weighing against the expected benefit.
The Short-Term Rental Tax Treatment That Makes It Work
Here is the piece that is specific to short-term rentals. Normally, rental real estate is treated as passive, and passive losses can only offset passive income, not your salary or business profits. But there is an exception baked into the rules. Under Treasury Regulation Section 1.469-1T(e)(3)(ii), an activity in which the average period of customer use is seven days or less is not treated as a rental activity for passive-activity purposes. On 30A, where homes are routinely booked as nightly and weekly vacation stays, that seven-day-average threshold is often within reach. If your property clears that bar and you materially participate in running it, the resulting losses, including a large first-year depreciation loss, can be treated as non-passive and applied against other income such as W-2 wages. Notably, this path does not require "real estate professional" status. This mechanism is what is popularly called the "short-term rental loophole." The seven-day average is measured across the year and must be documented.
Material Participation: The Hours That Count
The average-stay test alone is not enough; you also have to materially participate. The IRS provides seven tests, and you only need to meet one. The two most relevant for owners are spending more than 500 hours on the activity during the year, or spending more than 100 hours and more time than any other single person involved, including your cleaner, co-host, or property manager. Other tests include performing substantially all of the work yourself. This creates a practical tension on 30A: many owners hand the keys to a full-service rental manager, which can make it difficult to out-participate that manager under the 100-hour test. If this strategy matters to you, talk with your CPA early about how to structure management and how to document your hours, including calendars and logs covering bookings, guest communication, maintenance coordination, and furnishing decisions.
Depreciation Recapture and Other Trade-Offs
Accelerated deductions are not free money; they shift timing and create future exposure. When you sell, the IRS recaptures depreciation you previously claimed. Components reclassified as personal property under Section 1245 are generally recaptured at ordinary income rates, which can reach 37 percent, while the real-property portion, known as unrecaptured Section 1250 gain, is taxed at a maximum rate of 25 percent. Because cost segregation moves more of your basis into the Section 1245 category, it increases the share potentially subject to that higher recapture rate later. A few other realities belong in the picture: the study itself costs money; if you do not materially participate, the losses are suspended as passive and carry forward rather than offsetting other income; and front-loading deductions reduces the depreciation available in later years. A 1031 exchange or other planning can affect how recapture plays out. None of this makes the strategy unwise. It simply means the eye-catching year-one number is not the whole story.
What to Confirm With Your CPA
Before you count on any of this, sit down with a qualified tax advisor and work through the specifics:
- Whether your rental's average guest stay will reliably be seven days or less, and how you will document it.
- Which material participation test you can realistically meet, and how your property-management arrangement affects it.
- Whether a cost segregation study makes sense given your property's price point and your expected hold period.
- How bonus depreciation interacts with your other income and adjusted gross income, and any state tax rules that apply to you.
- Your projected depreciation recapture at sale, and whether a 1031 exchange fits your long-term plans.
- The current first-year bonus percentage and effective dates for your exact acquisition and placed-in-service timeline.
Putting the Numbers to Work on Your 30A Purchase
The tax treatment can meaningfully change the after-tax return on a 30A rental, but it only works when the property, the average-stay profile, and your level of participation all line up. That begins with buying the right home, in the right community, at the right price, with a layout and location that actually performs as a nightly or weekly rental. If you want help evaluating a 30A short-term rental purchase, including running the rental and resale math, comparing communities, and identifying homes that fit a rental strategy, connect with Mark Stroop LLC. The team brings local 30A knowledge, analytical guidance, and practical insight for buyers looking at primary homes, second homes, and investment property. Pair that guidance with a qualified CPA, and you can make the depreciation decision with your eyes open.
FAQs
What is short-term rental bonus depreciation?
It is the combination of bonus depreciation, a first-year deduction under Section 168(k), with the special tax treatment of short-term rentals. A cost segregation study reclassifies parts of the property into shorter-life assets, bonus depreciation lets you deduct them in year one, and if the rental qualifies, those losses may offset non-passive income. This is general information, not tax advice.
How much is bonus depreciation now?
According to the IRS, the One Big Beautiful Bill Act made 100 percent first-year bonus depreciation permanent for qualified property acquired and placed in service after January 19, 2025. BDO and Thomson Reuters report the same threshold. Confirm the percentage and effective dates for your exact timeline with your CPA.
Do I need to be a "real estate professional" to use these losses?
Generally no. The short-term rental treatment relies on the average guest stay being seven days or less plus material participation, not real estate professional status. The tests are technical, so verify your specific situation with a tax advisor.
What is cost segregation, and do I need it?
A cost segregation study is an engineering-based analysis that identifies building components eligible for shorter 5-, 7-, or 15-year depreciation. Practitioners often reclassify 20 to 35 percent of a property's basis. Whether it is worthwhile depends on your price point, hold period, and overall tax picture.
What is the catch with depreciation recapture?
When you sell, previously claimed depreciation is recaptured. Reclassified personal property under Section 1245 is generally taxed at ordinary rates up to 37 percent, and unrecaptured Section 1250 real-property gain at up to 25 percent. Accelerating deductions increases later recapture, so weigh the year-one savings against the eventual bill.
Does this work for any 30A property?
Not automatically. The home needs to function as a true short-term rental with a seven-day-or-less average stay, you need to materially participate, and the numbers need to justify a cost segregation study. Many 30A homes fit a nightly or weekly rental profile, but confirm the specifics with your CPA and a real estate advisor.
