All Rental Incentives From the One Big Beautiful Bill

The recent passage of the One Big Beautiful Bill has reintroduced and expanded tools for maximizing returns across every phase of your rental investment journey. While 100% bonus depreciation is by far the biggest thing in the OBBB for investors, it’s not the only thing that they should be excited about.

In this guide, we break down all rental property incentives embedded in the bill. Whether you’re a first-time Airbnb host or a short-term rental pro, there’s something here for every investor looking to reduce their tax liability.

Key Rental Incentives Unlocked by the One Big Beautiful Bill

• Return of 100% Bonus Depreciation - Immediately deduct the full cost of furniture, appliances, and improvements in year one instead of over multiple years.
• Expanded Section 179 Deduction for Airbnb Furnishings - Instantly expense up to $2.5 million in qualifying assets like beds, TVs, and kitchen equipment.
• Section 199A Pass-Through Deduction Expansion - Deduct up to 23% of your STR business income with higher thresholds and $400 minimum.
• Reduced Capital Gains Tax with Extended 1031 Exchange Windows - More time to complete property exchanges and defer capital gains taxes when selling.
• Clearer Guidelines for Material Participation Requirements - Clearer IRS rules for material participation reduce audit risk when claiming business deductions.

100% Bonus Depreciation Returns for Short-Term Rentals

The main highlight of this legislation for rental investors is definitely the permanent restoration of 100% bonus depreciation. This means you can immediately deduct the full cost of qualifying property improvements, furniture, appliances, and equipment in the year you place them in service, rather than spreading those deductions over many years.

What Qualifies for Bonus Depreciation in Your STR Business

For Airbnb hosts, bonus depreciation covers a wide range of assets:

1. Furniture and Furnishings: Beds, sofas, dining tables, artwork, and decorative items
2. Appliances: Refrigerators, washers, dryers, dishwashers, and coffee makers
3. Electronics: Smart TVs, sound systems, Wi-Fi equipment, and security cameras
4. Qualified Improvement Property: Interior renovations, flooring upgrades, lighting fixtures, and HVAC improvements

The key requirement is that these assets must have a Modified Accelerated Cost Recovery System (MACRS) recovery period of 20 years or less. This covers virtually everything inside your rental property except the building structure itself.

It’s also important to note that the land itself is not depreciable and cannot be included in any depreciation schedule. Only the structure value can be depreciable, and only the qualifying assets, like those mentioned above, can avail of the 100% bonus depreciation. Check out our full guide on maximizing depreciation through structure value for a more in-depth look at land vs structure value.

Timeline and Retroactive Benefits

The 100% bonus depreciation applies retroactively to January 20, 2025, and extends through December 31, 2029. This means any qualifying purchases you've made since January can benefit from the full deduction when you file your 2025 taxes, given that it meets the requirements.

Expanded Section 179 Deduction for Airbnb Furnishings

For investors furnishing a rental property, Section 179 allows you to expense qualifying assets like beds, couches, washers, dryers, and security systems in the year of purchase.

While Section 179 has traditionally been more favorable for active trades or businesses, the new bill broadens its accessibility to STRs that meet certain material participation or operational use thresholds.

The bill also raises the Section 179 deduction limits to $2.5 million. This provides additional flexibility for small and mid-sized STR operators to manage their taxable income through selective expensing of qualifying assets.

What You Can Deduct Under Section 179:

1. Furniture and furnishings
2. Appliances and kitchenware
3. Electronics, smart home tech, and software
4. Business-use equipment & machinery
5. Décor & guest amenities (if used in a business context)

Key Requirements for Qualifying Items

To qualify for Section 179 deductions, all items must meet specific key requirements regarding business usage and acquisition. The business usage threshold mandates that equipment must be used more than 50% for business purposes, with any personal use reducing the deduction proportionally.

Additionally, acquisition requirements specify that items must be purchased from unrelated parties, though both new and used equipment qualify as long as it's "new to your business." Finally, all qualifying property must be placed in service during the tax year in which you claim the deduction.

Section 199A (QBI) Pass-Through Deduction Expansion

Originally, the deduction would’ve expired in 2025. However, the new bill makes the qualified business income (QBI) deduction permanent with higher income limits for beginning phase-outs. The phase-outs are increased from $100K to $150K for single filers, and $200K to $300K for married couples who are filing jointly.

The bill also introduces a new $400 minimum deduction for taxpayers with at least $1,000 in qualified business income, helping smaller operators who might otherwise see limited benefits.

Reduced Capital Gains Tax with Extended 1031 Exchange Windows

The One Big Beautiful Bill significantly enhances 1031 like-kind exchanges for STR investors by extending critical timelines and reducing capital gains tax rates. The identification period doubles from 45 to 90 days, giving Airbnb hosts twice the time to find replacement properties in their target markets. The total exchange completion timeline extends from 180 to 270 days, providing more time to negotiate, secure financing, and close on deals.

Additionally, the bill reduces long-term capital gains rates from 20% to 15% for high earners and from 15% to 10% for middle-income investors, creating immediate tax savings even outside of 1031 exchanges.

These extended windows eliminate the pressure that previously forced STR hosts into suboptimal investment decisions. With 90 days to identify properties, hosts can thoroughly research emerging vacation destinations, analyze cash flow potential, and perform proper due diligence on replacement properties.

The 270-day completion timeline also allows for better market timing, seasonal pricing advantages, and the ability to wait for motivated sellers rather than rushing into mediocre deals that barely meet exchange requirements.

For Airbnb hosts, these changes unlock powerful portfolio optimization strategies without immediate tax consequences. Hosts can now strategically sell underperforming properties in oversaturated markets and reinvest in high-demand destinations, upgrade from older properties to luxury units, or consolidate multiple smaller rentals into larger assets.

The combination of extended timelines and reduced capital gains rates means a host selling a $500,000 property with $200,000 in gains saves $10,000 in taxes immediately (15% vs. 20% rate) while having nearly three additional months to find the perfect replacement property for their growing STR portfolio.

Clearer Guidelines for Material Participation

The One Big Beautiful Bill introduces specific, codified definitions for material participation in short-term rental operations, eliminating the gray areas that previously left STR hosts vulnerable to IRS challenges. The new law establishes clear metrics where hosts must spend at least 100 hours annually on rental activities with average guest stays of 7 days or less to qualify for material participation.

These tests replace the previous subjective standards that required hosts to prove "regular, continuous, and substantial" involvement, terms that were often disputed during audits. Additionally, the bill creates a safe harbor provision for hosts who maintain detailed time logs and can demonstrate direct guest interaction, property maintenance, and booking management activities.

The legislation also clarifies what constitutes qualifying business activities for STR operations, explicitly including guest communication, cleaning coordination, maintenance scheduling, marketing efforts, and financial record-keeping as legitimate business functions.

This comprehensive definition protects hosts from IRS arguments that their rental activities constitute passive investment rather than active business operations. The bill further establishes that family members can contribute qualifying hours toward the material participation threshold, provided they perform substantial services and maintain proper documentation. This is a significant benefit for husband-and-wife teams or family-operated STR businesses.

These clearer guidelines dramatically reduce audit risk by providing objective standards that both taxpayers and the IRS can follow consistently. Previously, material participation determinations often came down to subjective IRS agent interpretations, creating uncertainty and costly disputes.

Now, STR hosts who meet the specific hour requirements and maintain proper documentation can claim business deductions with confidence, knowing they have clear legal backing. This certainty allows hosts to aggressively pursue legitimate tax strategies like Section 199A deductions, bonus depreciation, and business expense write-offs without fear of IRS recharacterization, ultimately enabling more strategic tax planning and business growth decisions.

Learn more about material participation rules and how to qualify for it in our full material participation guide.

Wrapping Things Up

The One Big Beautiful Bill presents unprecedented opportunities through permanent 100% bonus depreciation, enhanced Section 199A deductions, and extended 1031 exchange windows. Smart STR hosts are already positioning themselves to take full advantage of these opportunities. Now that you know about the rental incentives, you can plan the best steps to take advantage of them.