Top Tax Advantages of Short-Term Rentals

1. Bonus Depreciation via Cost Segregation

STR owners can accelerate depreciation by breaking down a property into components (e.g., appliances, flooring, lighting) and deducting many of them in the first year. Through bonus depreciation (currently 60% in 2025), this can result in tens or even hundreds of thousands in immediate tax savings.

2. No Real Estate Professional Status Required (with Material Participation)

Unlike long-term rentals, STRs may be classified as active businesses if the average stay is under 7 days. That means investors can offset W-2 or business income with STR losses without needing to qualify as a real estate professional—if they meet material participation rules.

3. Full Deduction of Business Expenses

Almost all STR-related expenses are deductible, including:

Mortgage interest and property taxes
Utilities, insurance, and maintenance
Furnishings and décor
Cleaning, supplies, and amenities
Software and listing platform fees
Professional services (legal, tax prep, design, etc.)

4. Travel and Vehicle Write-Offs

Travel costs related to managing your STR (e.g., site visits, repairs, improvements) can be written off. If you use a qualifying vehicle (e.g., 6,000+ lbs), Section 179 may allow you to write off the full purchase cost in the first year.

5. Home Office Deduction

If you actively manage your STR business from a dedicated workspace at home, you may qualify for a home office deduction, including a portion of your rent, utilities, and internet.

6. 1031 Exchange Eligibility

Selling your STR? You may be able to use a 1031 exchange to defer capital gains taxes by reinvesting proceeds into another investment property—even another STR.

7. No FICA Taxes on Rental Income

Unlike active income from a W-2 job or self-employment, rental income (even from STRs) isn’t subject to Social Security or Medicare (FICA) taxes—provided you’re not offering substantial personal services.

Final Tip:

Short-term rentals combine powerful tax benefits with strong cash flow potential, making them a strategic vehicle for both income generation and tax reduction. But as always, consult a tax advisor to structure your STR business properly and ensure compliance with current IRS rules.