Disclaimer: I’m not a CPA. This information is for educational purposes only. Always consult with a qualified tax professional. You can find STR-savvy accountants here: ATX|STRS STR Accountants.
Why This Matters for STR Investors
If you’re buying or operating a short-term rental (STR), you’re not just running a hospitality business — you’re managing a powerful tax-advantaged investment.
The so-called “Airbnb tax loophole” isn’t shady or secret — it’s a completely legal way to maximize your deductions by understanding how depreciation and bonus depreciation work.
By properly allocating value between land and improvements, and by classifying your upgrades strategically, you can potentially deduct tens (or hundreds) of thousands of dollars in your first year of ownership.
1. Land Value vs. Improvement Value — The Foundation of STR Tax Strategy
Every property’s tax treatment starts with two buckets:
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Land — the ground itself. Not depreciable.
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Improvements — everything built or added to the land, from the home to the pool and furnishings. These are depreciable.
Your depreciation write-offs are calculated based on the improvement value, not the total purchase price.
So, the more of your property’s value allocated to improvements, the greater your depreciation potential.
How to Evaluate This When Shopping for an STR
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Check County Tax Records
Visit your county appraisal district’s website (for Austin, that’s Travis CAD). Look for a breakdown between Land Value and Improvement Value. -
Calculate the Ratio
Divide each by the total assessed value to find your percentages. -
Apply It to the Purchase Price
Use those ratios to estimate how much of your purchase price will qualify for depreciation.
💡 Example: The $1 Million STR Purchase
Let’s say you’re buying a $1,000,000 short-term rental in Austin.
According to the county appraisal:
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Land value: $300,000
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Improvement value: $700,000
That’s a 30/70 split, meaning roughly 70% of your property’s value is depreciable.
So, your breakdown looks like this:
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$300,000 → Non-depreciable land
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$700,000 → Depreciable improvement basis
If the land value were higher — say, a 50/50 split — your depreciable basis drops to $500K, and your available deductions shrink dramatically.
This ratio can have a six-figure impact on your long-term tax benefits.
When analyzing potential STRs, always ask:
“What’s the land vs. improvement value breakdown on this property?”
2. What Qualifies for Bonus Depreciation in Short-Term Rentals
Bonus depreciation lets you deduct a large portion of qualifying assets in the year they’re placed in service — instead of depreciating them slowly over decades.
That means faster deductions, more cash flow, and a quicker path to profitability.
Common STR Improvements That Qualify
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Furniture, appliances, and décor
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Flooring, lighting, and cabinetry
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HVAC systems, water heaters, and electrical upgrades
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Outdoor features: decks, pools, fencing, patios, landscaping
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Technology upgrades and security systems
Reminder: Land never qualifies — only improvements and tangible property do.
Bonus Depreciation + Cost Segregation = Powerful Combo
A cost segregation study breaks down your property into its individual components — identifying which parts can be depreciated faster (often 5, 7, or 15 years).
Pair that with bonus depreciation, and you can potentially write off a huge portion of your property in year one.
For example, after a cost-seg study, you might classify $150K worth of items (like flooring, fixtures, and appliances) as short-life property — and deduct it immediately.
This is one reason many savvy STR investors use cost segregation firms that specialize in vacation rentals.
3. How to Apply This as an STR Buyer
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Before You Buy
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Talk with your accountant about your depreciation strategy.
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Confirm whether bonus depreciation makes sense based on your income.
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During Property Search
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Review tax records for each potential property.
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Favor those with a higher improvement ratio (often newer or heavily renovated homes).
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After Closing
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Document every improvement and its cost.
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Work with your accountant to correctly classify each asset.
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Use IRS Form 4562 for depreciation and bonus depreciation elections.
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Ongoing Strategy
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Reinvest your tax savings into upgrades or new STR acquisitions.
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Understand depreciation recapture rules before selling.
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4. Key Reminders
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I’m not a CPA — this article is for educational purposes.
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Bonus depreciation rules can change (and phase-outs are scheduled in coming years).
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State tax treatment may differ from federal rules.
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Depreciation reduces current taxable income but can trigger recapture upon sale.
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Improvements must be “placed in service” to qualify.
👉 Find trusted experts on our STR Accountants page.
5. The Bottom Line
Short-term rental investors who understand tax strategy have a major competitive edge.
By evaluating the land vs. improvement value early and structuring purchases for bonus depreciation, you can:
✅ Lower your taxable income
✅ Improve your first-year ROI
✅ Reinvest tax savings faster
✅ Build wealth strategically through STRs
The “Airbnb tax loophole” isn’t about gaming the system — it’s about using the rules intelligently.
When you buy with depreciation in mind, you’re not just investing in property — you’re investing in smarter returns.
