How New Legislation Impacts REPS & STRs

For real estate investors, bonus depreciation has been one of the most powerful tools for reducing taxable income.

However, since 2023, this benefit has been phasing out—dropping from 100% in 2022 to 40% in 2025, with a complete phase-out planned for 2027.

Now, with the OBBBA bringing back 100% bonus depreciation, investors who qualify for Real Estate Professional Status (REPS) and those leveraging Short-Term Rentals (STRs) will benefit significantly.

So, what does this mean for you? Let’s break it down.

Understanding Bonus Depreciation, REPS, and STRs

What Is Bonus Depreciation?

Bonus depreciation allows investors to immediately deduct a large percentage of qualifying property costs instead of spreading deductions over several years.

Previously, the Tax Cuts and Jobs Act (TCJA) of 2017 allowed 100% bonus depreciation from 2017 to 2022. And, the phase-out schedule was as follows:

• 2023: 80% bonus depreciation
• 2024: 60% bonus depreciation
• 2025: 40% bonus depreciation
• 2026: 20% bonus depreciation
• 2027: 0% (fully phased out)

Under the OBBBA, 100% bonus depreciation was reinstated (for properties acquired and placed in service after January 19, 2025).

What Is REPS (Real Estate Professional Status)?

The Real Estate Professional Status (REPS) designation allows investors to treat rental real estate as a non-passive activity if they meet certain IRS requirements:

• Spending more than 750 hours per year on real estate activities.
• Real estate being their primary business activity (more than 50% of their total work time).

REPS investors can use rental property losses—including depreciation—to offset active income (such as W-2 wages or self-employment earnings).

What Is the STR Loophole?

The Short-Term Rental (STR) Loophole allows investors to bypass passive loss limitations even if they don’t qualify for REPS.

To qualify, the property must meet one of these conditions:

• The average guest stay is 7 days or less, OR
• The average stay is 30 days or less, and you provide “significant personal services” (e.g., daily cleaning, concierge services).

If these criteria are met, STRs are classified as active businesses, meaning losses—including bonus depreciation—can offset W-2 or other active income.

How the Return of 100% Bonus Depreciation Impacts REPS & STR Investors

Massive Upfront Tax Deductions

With 100% bonus depreciation reinstated, REPS and STR investors can once again fully deduct qualifying assets in the first year, slashing taxable income.

Example Scenario:

• An investor purchases an STR for $500,000.
• A cost segregation study identifies $100,000 in depreciable assets eligible for bonus depreciation.
• With 100% bonus depreciation, the investor can deduct the full $100,000 immediately, instead of spreading it out over decades.

Without bonus depreciation, these deductions would be limited, reducing the immediate tax benefits.

STR Investors Could Deduct More Against W-2 Income

One of the biggest perks of the STR loophole is the ability to use rental losses to offset W-2 income.

Example for STR Owners:

• You have a W-2 job making $200,000 per year.
• You acquire an STR and claim $100,000 in bonus depreciation.
• If the STR loophole applies, you can use the $100,000 depreciation to offset your W-2 earnings, reducing your taxable income to $100,000.

This could eliminate tens of thousands of dollars in taxes.

REPS Investors Could Offset Active Income

For REPS investors, 100% bonus depreciation supercharges tax benefits by allowing rental losses to fully offset business or W-2 income.

Example for REPS:

• A real estate professional earns $300,000.
• They acquire multiple properties and claim $250,000 in bonus depreciation.
• Since they qualify for REPS, they can apply the $250,000 loss against their active income, reducing taxable income to $50,000, resulting in huge tax savings.

Increased Cash Flow & Faster Portfolio Growth

By maximizing depreciation deductions, investors can:

• Keep more money in their pockets
• Acquire additional properties faster
• Reinvest in property improvements

With tax savings in the 5-6 figure range, REPS and STR investors could significantly expand their portfolios.

What Should REPS & STR Investors Do Now?

1. Update Tax Strategy
Work with a real estate tax professional to plan accordingly.

2. Consider Acquiring More Properties
With the return of 100% bonus depreciation, Investors should evaluate buying more properties.

3. Use Cost Segregation Studies
Cost segregation can accelerate depreciation deductions. With 100% bonus depreciation, the tax benefits multiply significantly.

4. Optimize REPS or STR Loophole Strategy
Make sure you structure your real estate activities to qualify for REPS or the STR loophole to maximize tax savings.

Final Thoughts: Why This Matters for REPS & STR Investors

100% bonus depreciation is a game-changer for both REPS and STR investors, offering:

• Full immediate deductions on qualifying assets
• Ability to offset W-2 or business income
• Massive cash flow benefits
• Expanded investment opportunities

Are you trying to determine if 100% bonus depreciation helps you? Request a free 30-minute discovery call with our team to see if we can help you minimize taxes.