Closing Before Year End? What 100% Bonus Depreciation Really Means

This time of year I start getting a certain kind of question from buyers. Usually it comes from someone with a good W-2 income who heard on a podcast that if they buy a vacation rental before December 31, they can write off a big chunk of it this year. Then they ask me if their Destin or Panama City Beach condo will close in time.

The short answer is that there's real truth in it, and also a few ways it goes sideways. I'm a Realtor, not a CPA, so please run your own numbers with a tax pro. But here's what I'd want you to know before you plan a closing around it.

What changed

The One, Big, Beautiful Bill that was signed in July 2025 brought back 100% bonus depreciation, and made it permanent, for qualifying property acquired after January 19, 2025. The IRS put out guidance on it in January 2026 (Notice 2026-11). Under the old schedule it would have dropped to 20% for 2026, so this is a big deal for anyone buying a furnished rental.

Here's the catch a lot of people miss. Bonus depreciation only applies to things with a recovery period of 20 years or less. The building itself is depreciated over 27.5 or 39 years depending on how it's used, and land isn't depreciable at all. So you don't write off the whole purchase price. What you write off is the furniture, appliances, carpet, some fixtures, and outdoor stuff like fencing and landscaping.

To figure out how much of your price falls into those buckets, most investors hire someone to do a cost segregation study. Without one, everything just goes on the long building schedule.

The "placed in service" part matters more than the closing date

This is the one I really want buyers to hear. IRS Publication 946 says property is placed in service when it's "ready and available for a specific use." For a rental, that generally means ready and available to rent.

So if you close on December 20 but the unit needs new furniture, photos, and a listing that won't be live until February, talk to your CPA about whether you actually hit 2026. A turnkey condo that comes fully furnished with bookings already on the calendar is a very different situation than a dated house that needs a refresh.

The short term rental piece

Normally rental losses are passive, which means they can't offset your salary. The reason short term rentals come up so much is an exception in the passive activity rules. If the average guest stay is 7 days or less, the IRS doesn't treat it as a "rental activity" for those rules. Then if you materially participate, for example by putting in more than 500 hours during the year, the losses may not be passive.

That 7 day average is pretty realistic on the Emerald Coast, where a lot of summer bookings are a week or less. But a couple of things can trip people up:

1. Monthly guests change your average. If you take a two month snowbird booking, that one stay can pull your average way up. Run the math before you say yes.
2. Material participation is harder with a full service manager. The 500 hour test isn't the only one, but the other common one requires at least 100 hours and no less than anyone else. If a management company and cleaning crew are doing most of the work, that gets tough. Keep a real log.
3. Your first year is short. Buying in late December means very few days to rack up hours or bookings in 2026.

Local things worth checking

• Land vs. building. Publication 527 says if you aren't sure of the values, you can split your cost using the assessed values for property taxes. That's on the county property appraiser's site (Okaloosa, Walton, Bay, Escambia and Santa Rosa all post them). On Gulf front lots the land can be a big share, which means less to depreciate.
• What actually conveys. Get the furniture and contents list in writing in the contract. If you're paying for a furniture package, it helps your CPA to know what you're getting.
• Licensing and tourist tax. You still need your state license and county tourist tax account set up before guests arrive. I wrote about that a few weeks back if you need the checklist.

Don't let the tax tail wag the dog

Depreciation you take now can come back when you sell, through depreciation recapture. A cost segregation study usually costs money too. And a big write off doesn't make up for a property that doesn't cash flow or sits in a building with a special assessment coming. I'd still underwrite the deal like the tax benefit doesn't exist, then treat it as a bonus if it works out.

If you're trying to close something on the coast before the end of the year, reach out and I can tell you what's realistic on timing for the buildings you're looking at, and which ones tend to come furnished and ready to rent. I'm happy to help you sort it out either way.

Melissa Haworth, eXp Realty