Clarifying 100% Bonus Depreciation Eligibility for Short-Term Rental under OBBBA

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Clarifying 100% Bonus Depreciation Eligibility for Short-Term Rental under OBBBA

Josh Madigan
Member since 2020 · 15 posts · 6 votes

I'm seeking clarification on whether my short-term rental property qualifies for 100% bonus depreciation under the One Big Beautiful Bill Act (OBBBA) or is limited to 40% bonus depreciation. I purchased the property, a single-family home used as an Airbnb with average stays of 7 days or less and significant services (e.g., daily cleaning), in December 2024 and placed it in service in May 2025.

I've encountered conflicting information about the OBBBA’s cutoff date for 100% bonus depreciation:

  • Some sources suggest the property must be both acquired and placed in service after January 19, 2025, making it ineligible due to the December 2024 purchase (and thus limited to 40% for early 2025).
  • Others indicate that the placed-in-service date (May 2025) determines eligibility for the 100% rate, regardless of the acquisition date.

I understand the structure (likely 39 years as nonresidential real property) is ineligible, but components like furniture and landscaping (5-15 years) may qualify with a cost segregation study. Can anyone confirm which cutoff applies and whether my May 2025 placed-in-service date qualifies components for 100% bonus depreciation? Citations to IRS guidance or OBBBA-specific sources would be appreciated.

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  • Dylan Brown
    MN · Member since 2025 · 107 posts · 97 votes
    1y

    Based on the facts you presented, you will be actually using 60%, not 40%.

    The initial phaseout of bonus depreciation was as follows:

    2022 - still 100%

    2023 - 80%

    2024 - 60%

    2025 - 40%

    2026 - 20%

    2027 and beyond - 0%

    Because the property was acquired in 2024, that would mean that the bonus depreciable components identified with a cost seg study would fall in the 60% bucket.  Still very powerful when you consider that the remaining 40% that is not bonus eligible will still be accelerated much faster than the 39 years it would have otherwise needed to be depreciated over.

    Unfortunately, the rules are quite clear that it is the acquisition date that matters, not the placed-in-service date.  More specifically, the law requires you to identify the date that you were contractually bound to the acquisition of the property after which you could not back out.  For you, that day was the day that you and the seller actually transferred title and at that point the property became yours legally and to back out would no longer be possible (not withstanding some extreme cases which don't apply here).

    However - if you did any improvements on the property that were completed after 1/19/2025 but before you placed in service, those improvements may be eligible for the 100% bonus depreciation under the OBBBA.

    Hope this helps!

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  • Malik JavedBusiness Member
    Specialist · Los Angeles California · Member since 2024 · 90 posts · 38 votes
    1y

    @Josh Madigan
    You're likely limited to 40% bonus depreciation.

    Here’s why:

    * Under the One Big Beautiful Bill Act (OBBBA), to qualify for 100% bonus depreciation in 2025, the property must be acquired and placed in service after Jan 19, 2025.

    * You bought your property in Dec 2024, so even though it was placed in service in May 2025, it doesn’t meet the “acquired after” rule.

    * That means you fall under the original TCJA phase-down rules, and only 40% bonus depreciation applies in 2025.

    The good news is:
    - You’re right that 5- to 15-year assets (like furniture, appliances, some landscaping) can qualify.
    - Building itself (39-year) doesn’t.

    A cost segregation study will help break those out so you can still claim 40% bonus where eligible.

    If you need help running the numbers or planning a cost seg study, feel free to reach out to me directly.

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  • Jason MalabuteBusiness Member
    Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 907 votes
    11mo

    Since the property was bought in 2024, you’d get 60% bonus depreciation, not 40%. The phase-out schedule goes 100% in 2022, 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% after 2027. What matters is when you legally acquired the property, not when it was placed in service. If you made improvements after buying but before putting it in service, those might still qualify for 100% bonus depreciation under the new rules.

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    11mo

    Good question, this one’s tripped up a lot of investors.

    Under the One Big Beautiful Bill Act, the 100% bonus depreciation applies only to assets both acquired and placed in service after January 19, 2025. Since you bought the property in December 2024, your components fall under the old schedule, meaning 40% bonus depreciation applies in 2025.

    You’re right that building structure doesn’t qualify, but items from a cost segregation study (like appliances, flooring, furniture, and landscaping) still do, just at the 40% rate.

    So even though your placed-in-service date is May 2025, the purchase date controls eligibility for 100%. Happy to connect!

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