In a move that has real estate investors talking, Congress recently passed the “Big Beautiful Bill” — and it’s packed with powerful incentives for those purchasing or improving investment properties, especially short-term rentals in Austin, Texas.
One of the biggest headlines? 100% bonus depreciation is back. If you’re buying or upgrading an STR after January 19, 2025, this could significantly lower your tax liability and increase early cash flow — a major win in today’s competitive market.
100% Bonus Depreciation Is Back (And Better Than Ever)
The bill reinstates full bonus depreciation for qualifying assets purchased and placed in service between January 20, 2025 and December 31, 2029. This means investors can deduct the full cost of eligible components in the first year — instead of spreading it out over multiple decades.
This applies to residential and commercial investment properties and covers assets with a 5-, 7-, or 15-year recovery period.
What does this mean for short-term rental owners in Austin? You can write off a large portion of your upfront investment immediately — if you meet certain criteria.
Eligible Assets: What Can Be Depreciated?
Let’s break it down. When you purchase a property, its value is typically split between land and structure. It's important to note that land cannot be depreciated — only the value attributed to the building and certain improvements is eligible.
What Can Be Depreciated (and Eligible for Bonus Depreciation if in Shorter Recovery Periods):
1. Personal Property & Furnishings (5-7 Year Property)
-
Furniture (beds, sofas, dining tables)
-
Appliances (washers, dryers, refrigerators)
-
Window coverings
-
Rugs and light fixtures
-
Electronics (TVs, security systems)
-
Decor used for business (artwork, mirrors)
2. Land Improvements (15-Year Property)
-
Landscaping
-
Outdoor decks and patios
-
Fences
-
Driveways and walkways
-
Exterior lighting
-
Pools and hot tubs
3. Interior Improvements and Building Components
While the physical structure (walls, roof, foundation) is typically depreciated over 27.5 years (residential) or 39 years (commercial), a cost segregation study can reclassify components such as:
-
Flooring
-
Cabinetry
-
Built-ins
-
Plumbing and electrical systems (to the extent they service short-life assets)
-
HVAC components (in some cases)
Why This Matters for Austin STR Investors
Let’s say you buy a $700,000 investment property in Austin. After allocating $150,000 to the land (which cannot be depreciated), you’re left with $550,000 of depreciable building value.
With a cost segregation study, you might reclassify 30-40% of that value into shorter-life assets eligible for 100% bonus depreciation.
Example:
-
Reclassified value: $550,000 × 35% = $192,500
-
At a 37% tax rate, your potential tax savings: $71,225 in Year 1
That’s money you can reinvest into:
-
Additional upgrades to boost nightly rates
-
Scaling your STR portfolio
-
Covering mortgage payments while ramping up bookings
Who Qualifies for This Tax Benefit?
To take advantage of 100% bonus depreciation under the new law, you must meet the following:
-
The property must be used for investment purposes (not personal use).
-
It must be purchased and placed in service after January 19, 2025.
-
You must have taxable passive income to apply the depreciation against (unless you qualify as a real estate professional).
-
The assets must qualify for shorter recovery periods (5-, 7-, or 15-year property categories).
What Austin STR Owners Should Do Now
1. Time Your Acquisition Strategically
Make sure your property is both purchased and placed in service (available for rent, listed, and ready for guests) after January 19, 2025 to qualify.
2. Work with a Cost Segregation Specialist
A cost segregation study is key to unlocking bonus depreciation. It identifies and reclassifies eligible components so you don’t miss valuable write-offs.
3. Separate Land and Building Value Accurately
Use your appraisal or tax records to establish a clear land-to-building allocation. Only the building portion (and qualified improvements) can be depreciated.
4. Understand the Limits of Personal Use
If you use your STR personally for more than 14 days per year (or 10% of total rental days), it may not qualify as an investment property under IRS rules.
5. Consult a Tax Professional Familiar with STRs
Tax treatment for short-term rentals can be nuanced, especially when navigating bonus depreciation, passive income rules, and real estate professional status.
Final Thoughts
The return of 100% bonus depreciation is a rare and powerful opportunity for Austin short-term rental investors. With the right strategy, you can reduce your tax bill, increase early cash flow, and grow your portfolio faster than ever before.
But timing is critical — only properties purchased and placed into service after January 19, 2025 will qualify. If you’re planning a purchase or renovation, now is the time to get your team in place and your strategy aligned.
