Why 2025 Might Be the Smartest Year to Buy a Short-Term Rental

With 100% bonus depreciation back for eligible property acquired after January 19, 2025, a short-term rental can create first-year deductions that may offset other income when the passive-loss rules allow it. The catch in Boston is that short-term rentals are allowed only in owner-occupied homes, so investors need to look at longer stays or markets outside the city.

Why might 2025 be a smart year to buy a short-term rental?

Because of the tax rules. If you’ve been on the fence about short-term rentals (STRs), 2025 isn’t the year to wait. With 100% bonus depreciation reinstated and STRs still qualifying for favorable tax treatment, investors have a chance to cut their tax bill while building an income-producing asset.

Key Takeaways

• Bonus depreciation is back at 100% for eligible property acquired after January 19, 2025, for items with a recovery period of 20 years or less, not the building itself.
• If your average guest stay is seven days or less and you materially participate, the activity is treated as non-passive, so losses may offset other income.
• Cost segregation combined with 100% bonus depreciation lets some investors deduct 20% to 40% of the purchase price in year one.
• In Boston, a short-term rental (stays under 28 consecutive days) is allowed only in an owner-occupied condo or 1- to 3-family building, registered every year.
• Confirm the current rules with your tax advisor, since tax laws can change.

What is 100% bonus depreciation for short-term rentals?

It lets you expense qualifying items in year one instead of over many years. Normally, property improvements and furnishings are depreciated over years, and the building itself over decades. But with bonus depreciation back at 100% for eligible property acquired after January 19, 2025, you can expense qualifying items (generally those with a recovery period of 20 years or less, not the building itself) in year one (IRS). That means real, immediate savings, not years of waiting.

Can short-term rental losses offset W-2 income?

They can, if the stay and participation rules are met. Most rentals are “passive” in the IRS’s eyes, so losses can’t offset your W-2 or business income. STRs are different. If your average guest stay is seven days or less, the activity isn’t treated as a rental activity under the passive-loss rules (26 CFR 1.469-1T(e)(3)(ii)(A)), and if you also materially participate, it’s treated as non-passive. This opens the door for depreciation losses to offset other income.

How does cost segregation work with bonus depreciation?

Cost segregation takes the property apart on paper: categorizing items like flooring, appliances, and landscaping into shorter depreciation schedules. Combine that with 100% bonus depreciation, and some investors can deduct 20% to 40% of the property’s purchase price in year one. For some investors, that’s tens of thousands (or more) in immediate tax relief.

Can investors run a short-term rental in Boston?

Not in a property they don't live in. In Boston, a short-term rental (stays under 28 consecutive days) is allowed only in an owner-occupied condo or 1- to 3-family building: a room or unit in the owner’s primary residence, or a second unit in the owner-occupied 2- or 3-family building. Each unit must be registered with the city every year. A property an investor doesn’t live in can’t be a Boston STR (boston.gov). Investors looking at non-owner-occupied units in Boston should look at stays of 28 days or more instead, or at markets outside the city, and check that town’s rules.

What does this mean for short-term rental investors?

It means running the tax numbers before you buy.

• You can use tax rules to reduce your 2025 liability instead of just writing checks.
• STRs give you both cash flow from nightly bookings and tax offsets.
• Update, November 2026: the 2025 federal tax law made 100% bonus depreciation permanent for eligible property acquired after January 19, 2025 (IRS). Tax laws can still change, so confirm the current rules with your tax advisor.

Is a short-term rental worth it for the tax benefits?

Have you considered owning a short-term rental? With 100% bonus depreciation back in play, it’s worth running the numbers with your tax advisor. The right property, in a place where STRs are allowed and operated the right way, can build wealth and reduce your tax bill.

FAQ

Is 100% bonus depreciation back in 2025?

Yes, for eligible property acquired after January 19, 2025. As of the November 2026 update, the 2025 federal tax law made it permanent for that property. It applies to qualifying items, generally those with a recovery period of 20 years or less, not the building itself.

What is the short-term rental tax loophole?

Most rentals are passive, so losses can't offset W-2 or business income. If your average guest stay is seven days or less, the activity isn't treated as a rental activity under the passive-loss rules, and if you also materially participate, it's treated as non-passive.

Can I run a short-term rental in Boston as an investor?

No. Boston allows short-term rentals of under 28 consecutive days only in an owner-occupied condo or 1- to 3-family building, registered every year. Investors can look at stays of 28 days or more, or at markets outside the city.

The bottom line: bonus depreciation and the short-term rental rules may lower an investor's tax bill, but only where short-term rentals are allowed, so run the numbers with your tax advisor before you buy.

Sources

• IRS, Treasury and IRS guidance on the additional first year depreciation deduction: https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-the-additional-first-year-depreciation-deduction-amended-as-part-of-the-one-big-beautiful-bill
• IRS Publication 946 (2025), qualified property for the special depreciation allowance: https://www.irs.gov/publications/p946
• 26 CFR 1.469-1T (Cornell LII): https://www.law.cornell.edu/cfr/text/26/1.469-1T
• City of Boston, Short-Term Rentals: https://www.boston.gov/departments/inspectional-services/short-term-rentals

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About Juan Murray

Juan Murray is a Boston broker associate with more than 30 years of experience helping buyers, sellers, and investors across Greater Boston, personally leading every transaction from the first conversation through closing.

RE/MAX Real Estate Center · (978) 581-0801

Equal Housing Opportunity. Juan Murray is licensed as a Broker in Massachusetts, regulated by the Massachusetts Board of Registration of Real Estate Brokers and Salespersons. This article is general information only and does not constitute legal, tax, or financial advice. Confirm your specific costs and obligations with your closing agent, tax advisor, or lender.