A year and a half ago, bonus depreciation on a vacation rental bought in 2026 was scheduled to be 20%.
Today it's 100%. Permanently.
The One Big Beautiful Bill Act, signed July 4, 2025, reversed the phase-down and restored full bonus depreciation for property acquired after January 19, 2025 (source).
But there's a date attached, and it's not April 15. It's December 31. If your rental isn't ready and available for guests by the last day of the year, that deduction moves to next year's return.
We're ten weeks out. Here's the checklist.
Why this matters right now
I wrote about the bigger tax picture in our STR tax strategy post — material participation, cost segregation, the whole playbook. This post is narrower. It's about one deadline, and owners can miss it.
They're usually not careless. They closed in September or October, the furniture is on backorder, the hot tub electrician is booked out three weeks, and the listing goes live January 6. Totally reasonable timeline. Also a timeline that just pushed their biggest deduction back twelve months.
The IRS issued interim guidance on the new rules in January (Notice 2026-11), and it confirmed what most CPAs expected: the existing rules apply, including the binding-contract rule (source). So the rules are settled. The only variable left is whether your house is ready.
Step 1: Confirm your purchase actually qualifies for 100%
The 100% rate applies to property acquired and placed in service after January 19, 2025. The catch is the word "acquired." If you signed a written binding purchase contract on or before January 19, 2025, the IRS generally treats the property as acquired on the contract date — even if you closed months later (source). Those deals can stay under the old phase-down rates.
What to do: Pull your purchase agreement and check the date you signed it, not the closing date. If you bought anytime in 2026, you're almost certainly fine.
Step 2: Get to "ready and available," not "booked"
This is the part most owners misunderstand. "Placed in service" does not mean a guest stayed there. It doesn't require a booking or a dollar of rental income. It means the property is in a condition of readiness and availability for its intended use (source).
For a short-term rental, that generally looks like:
Utilities connected and working. Power, water, internet.
Certificate of occupancy, if your jurisdiction requires one.
Repairs and renovations substantially complete. A home still under renovation on December 31 is not placed in service that year (source).
Listed or actively marketed for rent. For an STR, that means a live listing with open dates a guest could actually book.
I'd add one thing from the operator side: furnished and guest-ready. A vacation rental without beds isn't available for its intended use, no matter what the listing says.
What to do: Work backward from December 31. Furniture delivery, photography, permits, and listing setup all take longer in November and December than anyone plans for. If you're with a manager, ask for the go-live date in writing now. Screenshot the live listing with open availability the day it publishes — that's your documentation.
Step 3: Order the cost segregation study
Bonus depreciation doesn't apply to the building itself. It applies to the components with a recovery period of 20 years or less — appliances, furniture, flooring, certain fixtures, landscaping, the hot tub (source). An engineering-based cost segregation study is how you identify them and put a number on them.
Here's what that looks like on a typical lake home. These are illustrative numbers, not a promise — your study sets the real ones.
Purchase price: $700,000
Land (not depreciable), ~20%: $140,000
Depreciable basis: $560,000
Short-life components identified, ~25%: $140,000
First-year bonus depreciation at 100%: $140,000
At a 35% federal bracket: roughly $49,000 in federal tax savings
For reference, the published examples I found put short-life components anywhere from 21% to 30% of basis, depending on the property (source).
The remaining building basis depreciates over decades, and because it starts mid-month, a December placed-in-service date doesn't give you much of that portion in year one either way. The bonus is where the money is.
What to do: Get a cost seg quote now, before the year-end rush. The study itself can be part of your tax prep; the placed-in-service date can't.
Step 4: Know whether you can actually use the loss
This is the part nobody in my industry likes to say out loud, so I'll say it.
A big first-year depreciation loss only offsets your W-2 or business income if the rental is non-passive. For a short-term rental, that generally means two things:
Average guest stay of 7 days or less. Total rented nights divided by the number of stays. Owner stays and vacant nights don't count (source).
You materially participate. The two tests most owners look at are more than 500 hours in the year, or more than 100 hours and not less than any other individual (source).
That "not less than any other individual" piece includes your property manager and your cleaners. If your manager logs 150 hours and you log 120, you fail that test (source).
So here's the honest version: if you hand your home to a full-service manager — including us — you will probably not pass the 100-hour test. You'd need the 500-hour test, and that's about 10 hours a week, every week.
That doesn't make the depreciation worthless. A passive loss still offsets other passive income, and what you can't use carries forward. But if your plan was "buy a cabin in November, have it fully managed, and wipe out my W-2 taxes in April," that plan needs a CPA conversation before December, not after.
Two things that help:
Your spouse's hours count toward yours, whether or not you file jointly (source).
Keep a same-day time log. Task, date, hours, plus the texts, receipts, and invoices that back it up. The courts have not been kind to owners who reconstruct their hours in March (source).
Step 5: Check your state return
Federal bonus depreciation does not automatically flow through to your state. And in our markets, it mostly doesn't.
Washington (Spokane & Walla Walla ): No state income tax, so this is purely a federal question.
Idaho (Coeur d'Alene): Idaho updated its tax code conformity in February, but it remains decoupled from bonus depreciation (source). Expect an add-back on your Idaho return.
California (Palm Springs and the Coachella Valley): California doesn't conform to federal bonus depreciation and didn't adopt the 2025 federal changes (source). Your California return depreciates on its own schedule.
None of that changes the federal math. It does change what your total tax bill looks like, and it's worth knowing before you model the purchase.
The mistake I see every fall
Owners treat December 31 like a soft deadline. It isn't. Miss it by a week and you don't lose the deduction — you wait a full year for it, and the cash you were counting on for the next property, the renovation, or the down payment on the next one sits on next year's return instead.
The second mistake is assuming the deduction is automatically usable against your salary. It's a real benefit either way. But it's a much bigger one if you've structured your involvement for it from day one.
The Bottom Line
If you bought a vacation rental this year, do three things this week: confirm your contract date, set a written go-live date before December 31, and get a cost segregation quote. Then sit down with a real estate-focused CPA and decide whether you're aiming for non-passive treatment — because that decision changes how involved you need to be in your own property.
This isn't tax or legal advice. Every situation is different, and working with a real estate-focused CPA is non-negotiable.
Bought something this year?
If you've closed or are about to close on a vacation home in Spokane, Coeur d'Alene, Walla Walla, or the desert, we'll tell you honestly what it takes to get it guest-ready before year-end — and whether it pencils as a short-term rental at all. No pressure. No sales pitch.
Reach out here and let's talk.
Sources
REcostseg — "Bonus Depreciation 2026" (Mitchell Baldridge, CPA) — https://recostseg.com/post/bonus-depreciation-2026 — Jan 15, 2026 — OBBBA signed July 4, 2025; 100% for property acquired after Jan 19, 2025; prior 20% phase-down; eligible components; short-life percentage examples (21%, 30%).
NATP — "IRS Releases Guidance on Permanent 100% Bonus Depreciation" — https://www.natptax.com/news-insights/blog/irs-releases-guidance-on-permanent-100-bonus-depreciation/ — Jan 14, 2026 — Notice 2026-11; binding contract rule.
REcostseg — "Placed in Service" — https://www.recostseg.com/post/placed-in-service — 2026 — definition under 26 CFR §1.167(a)-11; utilities, CO, repairs complete, listed; no booking or income required.
RedAwning — "Short-Term Rental Tax Loophole 2026" — https://www.redawning.com/pm/post/short-term-rental-tax-loophole-2026 — 2026 — renovation not complete on Dec 31 = not placed in service; spouse hours count (§1.469-5T(f)(3)); documentation practices.
Dimov Tax — "The Short-Term Rental Tax Loophole Guide" — https://dimovtax.com/short-term-rental-tax-loophole-guide/ — average stay calculation; property manager counted under the 100-hour test (150 vs. 120 example).
WCG CPAs — "Short-Term Rental Material Participation Tests" — https://wcginc.com/kb-rental-property/short-term-rental-material-participation-tests/ — 500-hour and 100-hour tests (§1.469-5T(a)); Pohoski v. Commissioner on documentation.
RSM — "Idaho Conforms to One Big Beautiful Bill" — https://rsmus.com/insights/tax-alerts/2026/idaho-conforms-one-big-beautiful-bill.html — Feb 13, 2026 — HB 559; Idaho remains decoupled from §168(k).
Grant Thornton — "California Conformity Date Update Excludes OBBBA" — https://www.grantthornton.com/insights/alerts/tax/2025/salt/a-e/ca-conformity-date-update-excludes-obbba-10-21 — Oct 21, 2025 — California does not conform to §168(k) or OBBBA.
