100% Bonus Depreciation Is Back: What It Means for Short-Term Rental Buyers

This is general information, not tax advice. Review your situation with your CPA before acting. If you earn a high W-2 income and you have been circling a Jersey Shore rental, the tax math moved in your favor last year. The One Big Beautiful Bill Act, signed July 4, 2025, made 100% bonus depreciation permanent.…

This is general information, not tax advice. Review your situation with your CPA before acting.

If you earn a high W-2 income and you have been circling a Jersey Shore rental, the tax math moved in your favor last year. The One Big Beautiful Bill Act, signed July 4, 2025, made 100% bonus depreciation permanent. Under the old schedule it was phasing down, worth 40% in 2025, then 20%, then nothing. That deduction is now available in full, with no sunset date sitting behind it.

The part that gets skipped on social media is that a large first-year deduction only helps if you can actually use it against your wages, and that is a short-term rental question rather than a bonus depreciation question. This post covers the depreciation half. The rest of the strategy lives in our Jersey Shore short-term rental tax strategy guide.

What depreciation is

When you buy a rental property, you do not deduct the purchase price in the year you write the check. You recover it over time through depreciation, an annual deduction that accounts for the building and its contents wearing out. Residential rental property is depreciated over 27.5 years, so the ordinary approach spreads your basis in the structure across almost three decades in even slices.

Land is the exception, and down here it is a large one. Land never depreciates, in year one or ever. When you buy in Seaside Park or Lavallette, a meaningful share of the price is the lot itself, and none of that produces a deduction. Any honest depreciation conversation starts by separating what you paid for land from what you paid for the building and everything in it.

What bonus depreciation adds

Bonus depreciation pulls deductions forward. Rather than spreading the cost of certain components across 27.5 years, you deduct their full cost in the first year the property is placed in service, meaning the year it is ready and available for guests. It is the same total deduction over the life of the property, taken up front instead of in thin annual slices.

That timing is the whole point for a W-2 buyer. A deduction spread over 27.5 years barely registers against a large salary. Concentrated into one year, it can offset a real portion of that year’s income, assuming you clear the rules that let rental losses reach wages at all.

What changed with the One Big Beautiful Bill Act

Before July 4, 2025, bonus depreciation was on its way out, set at 40% for 2025 and headed to 20% and then zero. The One Big Beautiful Bill Act restored it to 100% for qualifying property acquired after January 19, 2025, and made it permanent.

One detail matters if your deal has been sitting a while. “Acquired” turns on the contract date, so a purchase that originated under a binding written contract signed on or before January 19, 2025 does not get the 100% rate. If your contract is dated after that, you are in the new rules. That is also why our [earlier Jersey Shore STR bonus depreciation post]([LAST YEAR’S POST URL]) reads differently than this one. The rate it described was temporary.

Why this matters more for short-term rentals than long-term rentals

A large depreciation deduction only helps if you can use it against the income you actually have, which for most of our buyers is W-2 wages. Under Section 469, rental losses are passive, and passive losses cannot offset wage income. They sit and wait until you have passive income or you sell. Someone with a long-term rental in Belmar can generate a paper loss and watch none of it reach the W-2.

The exception is what makes short-term rentals different. If the average guest stay is seven days or less, the activity is not treated as a rental activity at all. It is treated as a business. If the owner then materially participates, meaning they are genuinely involved in running it under one of the IRS tests rather than writing checks from a distance, the losses are non-passive and can offset wages. Average stay is measured as total nights rented divided by the number of separate stays, so one long winter tenant can break it, and the participation tests compare your hours against every individual involved, including your cleaner. Both are covered in the post on the 7-day rule and material participation, which is worth reading before you buy.

What actually qualifies for bonus depreciation

Bonus depreciation applies to property with a recovery period of 20 years or less. The 27.5-year building does not qualify, and neither does the land. What qualifies is everything the tax code treats as 5, 7 and 15-year property: appliances, fixtures, flooring, cabinetry, decks, driveways, landscaping and other site improvements.

Those components are not broken out on your closing statement. A cost segregation study is what identifies them, an engineering-based analysis performed by a third-party cost segregation firm that takes the purchase apart and assigns cost to each class of property. On 506 Bay Blvd, a property we sold, the study came in at around 14 percent of the purchase price. Commonly cited ranges run from roughly 10 to 40 percent of depreciable basis depending on property type, and providers often quote 20 to 35 percent for residential, but those are numbers other people cite rather than a promise. Shore properties tend to land lower because so much of the price here is land. How the study works is covered in the cost segregation post.

What that looked like on 506 Bay Blvd

We represented the buyer on 506 Bay Blvd at a $969,000 purchase price, and we ran the revenue projections and sales comps before the offer went in, because the property had to work as an investment first. A cost segregation study produced $137,975 in 100% bonus depreciation in year one and $143,061 in total 2025 depreciation, roughly 14 percent of the purchase price moved into short-life property.

The activity was non-passive under the short-term rental rules, so the deduction offset the client’s W-2 income. As an illustration, a $143,061 deduction at a 37% marginal federal rate is worth roughly $52,900 in federal tax, before any state effect. That figure is illustrative only. It is a deduction and not a credit, and your bracket, your basis and your participation all change the answer.

Recapture, because this is a timing benefit

When you sell, some of this comes back. Recapture means the IRS collects on deductions you already took: the depreciation on the short-life components comes back as ordinary income, and depreciation on the building is taxed at up to 25%. A 1031 exchange, which rolls proceeds into another investment property, can defer recapture but does not erase it.

Bonus depreciation moves tax you would owe later into money you keep now, and money kept now can be invested or put against the loan. It is a timing benefit rather than free money, and anyone who describes it otherwise is selling you something.

If you are considering this for the current tax year, these are the numbers and dates to work against.

Key dates and figures for the 2026 tax year:

• Under contract by mid-October 2026 to realistically be in service by year-end
• Closed by early December 2026 (typical Shore closing runs 30 to 45 days)
• Furnished, listed and bookable by December 31, 2026
• Bonus depreciation rate on 2026 purchases: 100%
• Excess business loss limit for 2026: $256,000 single, $512,000 married filing jointly

Updated September 2026.

How we work with buyers on this

We are agents who represent buyers, and we were doing this with clients before the rule change made the rate permanent. We underwrite the property on real revenue history and real sales comps before you make an offer, and if the deal does not stand up as an investment without the depreciation, we tell you to pass. A bad purchase with a good deduction is still a bad purchase, and you own it long after the deduction is spent.

When the numbers do work, we help structure the purchase and the first few months so the short-term rental rules are actually available to you: furnished, listed and bookable before year-end, average stay where it needs to be, and the first season set up so you are the one participating. Jason has used these strategies himself, so the conversation is practical rather than theoretical. Your CPA still signs off on the return, and we work alongside them rather than around them.

If you want to know whether a specific Shore property pencils out, bring Jason an address or a budget plus a rough sense of your tax situation, and he will walk you through projected revenue, the comps and a realistic year-one depreciation range on a call. If the answer is that you should wait, he will say so.

This is general information, not tax advice. Review your situation with your CPA before acting.

Frequently asked questions

What is bonus depreciation? Bonus depreciation lets you deduct the full cost of certain property components in the first year the property is placed in service, instead of spreading those deductions over many years. It applies to property with a recovery period of 20 years or less. For a rental, that means items like appliances, flooring, cabinetry, decks and landscaping, not the building itself.

Is 100% bonus depreciation permanent now? Yes. The One Big Beautiful Bill Act, signed July 4, 2025, set bonus depreciation at 100% for qualifying property acquired after January 19, 2025 and removed the phase-down. Before that law, the rate was 40% for 2025 and headed to zero. Property acquired under a binding contract signed on or before January 19, 2025 does not get the 100% rate.

Does it apply to short-term rentals? Bonus depreciation applies to any qualifying rental property. What is different about short-term rentals is whether you can use the resulting loss against W-2 income. Under Section 469 rental losses are passive, but if the average guest stay is seven days or less and you materially participate, the losses are non-passive and can offset wages.

Do I need a cost segregation study? If you want to take bonus depreciation on the short-life components, you need a study to identify and value them, because a closing statement does not break them out. A third-party cost segregation firm performs the analysis. Reclassification percentages vary by property, and Jersey Shore properties often land lower than national ranges because so much of the price is land.

What is depreciation recapture? Recapture is the tax you pay on depreciation you previously deducted when you sell the property. Depreciation on the short-life components comes back as ordinary income, and depreciation on the building is taxed at up to 25%. A 1031 exchange can defer recapture but does not eliminate it, which is why this is best understood as a timing benefit.

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