2025 is shaping up to be a big year for short-term rental owners when it comes to taxes. The most talked-about change is the return of 100% bonus depreciation after the passage of the One Big Beautiful Bill (OBBBA) in mid-January. This means owners can once again write off qualifying property and improvements in the year they’re placed in service, making upgrades and expansions more appealing.
Another key point is that QBI rules still apply for many rental businesses, offering potential 20% deductions on eligible income if the activity qualifies as a trade or business. Plus, the 1099-K reporting threshold has been restored to $20,000 and 200 transactions, which means fewer small hosts will get unexpected tax forms from platforms.
Each of these updates comes with its own details and planning opportunities, and we’ll dig into what they mean for STR owners in the sections ahead.
Entity Choice & The QBI (§199A) Deduction
One of the biggest perks for short-term rental owners in 2025 is the continued availability of the Qualified Business Income (QBI) deduction. This allows eligible hosts to deduct up to 20% of their qualified income from pass-through entities like an LLC, partnership, or sole proprietorship. The deduction was made permanent, which gives property owners more room to plan long-term.
To qualify, the activity generally needs to rise to the level of a trade or business. For many STR owners, this means showing regular and continuous involvement in the operation. The IRS also has a safe harbor rule that can help some hosts meet this standard if they track hours and certain activities.
Income thresholds still matter. Above certain levels, deductions may phase out or require more documentation. Getting your entity structure right early on can make the difference between a modest tax break and a major deduction.
The Short-Term Rental “Loophole”: Making Losses Non-Passive
The short-term rental loophole gives many hosts a powerful way to reduce their tax bill. If the average guest stay is around seven days or less and you meet material participation rules, the IRS may treat your rental activity as non-passive. That means any losses can be used to offset W-2 or other active income, which can make a real difference at tax time.
To qualify, you need to be actively involved in managing the property. This can mean putting in at least 100 hours and doing most of the work yourself, or meeting a 500-hour total participation threshold. The key is solid documentation. A lot of hosts run into trouble because they don’t keep time logs or clear records, making it easy for the IRS to challenge their claim. Good recordkeeping can be the difference between a smooth filing and a tough audit.
Depreciation Power Plays: 100% Bonus + Cost Segregation (2025 Rules)
Depreciation is a powerful tool for short-term rental owners, and 2025 brings some especially good news. With 100% bonus depreciation back in play, you can deduct the full cost of qualifying assets in the year they’re placed in service. This includes things like furniture, appliances, fixtures, and certain land improvements that help your property stand out.
A cost segregation study can make this strategy even stronger. By breaking a property into shorter-lived components, you can front-load more deductions and lower your taxable income faster. Timing matters here. To take advantage of the new rules, the property or improvements must be acquired and placed in service after January 19, 2025. If there’s a binding contract before that date, the rules can get tricky, so it’s smart to plan ahead.
Used correctly, this strategy can free up cash and create real breathing room during tax season.
CapEx vs. Repairs: Safe Harbors That Keep Cash in Your Pocket
When it comes to short-term rentals, how you classify expenses can make a big difference at tax time. Capital expenditures, or CapEx, are improvements that add value or extend the life of your property. These typically have to be capitalized and depreciated over time. On the other hand, certain repairs and maintenance costs can be deducted right away, which helps reduce your taxable income in the current year.
Two IRS tools can work in your favor here. The de minimis safe harbor lets you expense smaller purchases like furniture, appliances, or fixtures if they fall under certain dollar limits. Routine maintenance safe harbor covers work done to keep the property in its normal condition, like fixing a leaky roof or replacing a broken lock.
Accurate recordkeeping is key. Clear invoices and receipts make it easier to support your deductions and keep more cash in your pocket.
Travel, Home Office, Augusta Rule & Other Everyday Deductions
Short-term rental owners have more everyday deductions than many realize. Travel is a great example. If you visit your property for maintenance, upgrades, or management tasks, mileage or actual travel costs can often be deducted. The key is good documentation and a clear business purpose for each trip.
A home office can also qualify as a legitimate deduction if you use a dedicated space to manage bookings, handle guest communications, or oversee operations. Keep it exclusive to business activities, and you can deduct a portion of your home expenses.
Then there’s the Augusta Rule under Section 280A(g). It allows homeowners to rent their personal residence for up to 14 days per year without paying federal income tax on that rental income. Some hosts use this strategy to rent to their own business, but this requires extra care to stay compliant and avoid IRS issues.
Exiting Tax-Smart: 1031 Exchanges & Basis Planning
Selling a short-term rental doesn’t have to mean handing a huge chunk over to the IRS. A 1031 exchange can let you defer capital gains taxes by rolling the proceeds into another qualifying property. For many vacation rentals, this is possible if the property meets the safe harbor rules under Rev. Proc. 2008-16, which generally means you’ve rented it out for enough days and used it personally within the allowed limits.
Timing is critical. You have 45 days to identify your replacement property and 180 days to close on it, so planning ahead is key. Cost segregation studies can help maximize depreciation on the front end, but they also increase depreciation recapture later. That doesn’t make them a bad idea, it just means the math needs to be carefully managed when you sell. A solid strategy here can help keep more of your gains working for you.
Compliance & Cash-Flow Hygiene for Hosts
Keeping your financial house in order is just as important as finding your next great guest. The 1099-K threshold is officially back at $20,000 and 200 transactions, which means fewer hosts will receive this form from booking platforms. This doesn’t mean your rental income isn’t taxable, though. You still need to track and report everything accurately.
Coordinating payouts from multiple platforms can get messy fast, especially if you host on more than one site. It helps to set up a clear system to match deposits with bookings so you can stay organized throughout the year. Don’t forget about lodging and occupancy taxes either, since those vary by state and can impact your cash flow if you’re not collecting or remitting them correctly.
Clean books make tax season a lot less stressful and give you the records you need to support every deduction you plan to claim.
Action Checklist for 2025 Filings
If you want to stay ahead of tax season, having a clear game plan is key. Here’s a simple checklist to keep your short-term rental business organized and optimized for 2025.
Quick To-Do List:
- Schedule your cost segregation study before filing deadlines if you made major upgrades.
- Keep accurate participation hour logs to back up any active status claims.
- Review your entity structure and make sure you’re maximizing the QBI deduction if it applies.
- Double-check nexus and local lodging tax obligations in every market where you host.
- Organize all receipts and expense records early to avoid last-minute scrambling.
The Bottom Line
Tax planning for short-term rentals has always been about timing, structure, and good records. In 2025, those principles matter more than ever with bonus depreciation back in play, QBI opportunities still on the table, and reporting rules shifting again. A little preparation can translate into big savings when filing season rolls around.
If keeping track of tax rules, participation logs, and compliance sounds like a full-time job, it’s smart to lean on expert support. Partnering with a professional property management service like RedAwning can help streamline your operations, keep your books clean, and give you better visibility into what can and can’t be deducted. Strong financial systems not only save time but also maximize the value of your investments.
Getting ahead now sets you up for a smoother, more profitable tax season later.
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