Last updated: April 2025
As tax reform takes center stage again in Washington, short-term rental (STR) investors should be paying close attention. With the Republican-controlled House set to reintroduce a key portion of the Trump-era tax cuts, and the Senate making procedural moves to advance the same agenda, the potential return of these tax policies could have major implications for real estate investors across the country.
Here’s what’s happening, what it could mean for the STR market, and how investors can position themselves ahead of possible tax changes.
The Push to Reinstate Trump-Era Tax Cuts
In early April 2025, the U.S. Senate passed a budget resolution that would allow Republicans to fast-track tax legislation later this year—without needing support from Democrats. Around the same time, the House of Representatives announced plans to reintroduce key elements of the 2017 Tax Cuts and Jobs Act (TCJA), particularly those that are set to expire after 2025.
The focus of the proposed legislation includes:
- Extending income tax cuts for individuals
- Preserving the lower pass-through income tax rates for LLCs and S-corps
- Continuing the higher standard deduction
- Possibly making permanent the bonus depreciation rules
For STR investors operating as individuals or through LLCs, these proposals could directly affect your bottom line.
Key Implications for STR Investors
1. Pass-Through Income and Lower Tax Rates
Most STR operators hold property in LLCs, which are taxed as pass-through entities. If Trump’s tax cuts are extended, the qualified business income (QBI) deduction of up to 20% could remain intact—lowering effective tax rates for many STR owners.
This deduction has been one of the most powerful tax benefits for individual real estate investors. Its continuation would provide meaningful savings, especially for operators managing multiple properties.
2. Bonus Depreciation and Cost Segregation
Another major component that STR investors should watch is bonus depreciation. Under the TCJA, investors could write off 100% of qualifying property improvements in the first year via cost segregation studies. However, that benefit has been phasing out and is set to disappear completely without legislative action.
If the tax cuts are extended or made permanent, bonus depreciation could remain or be reinstated at a favorable level. This would bring back a powerful incentive to pursue cost segregation and maximize first-year deductions on eligible STR properties.
👉 Want to explore how cost segregation can significantly reduce your tax burden this year? Connect with one of our cost seg experts for a free consultation and see how much you could save.
3. STR-Friendly Entity Structures Could Remain Attractive
The current tax framework heavily incentivizes the use of LLCs and S-corps for real estate activity. If the lower pass-through rates and deductions stick around, it may continue to make sense to structure STR operations this way—especially when combined with depreciation strategies and 1031 exchanges.
However, investors should be aware: even if these cuts are passed, the political landscape is highly dynamic. Building flexibility into your tax and investment strategy is critical.
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What Happens If the Cuts Expire?
If no legislation is passed by the end of 2025, many of the most investor-friendly provisions of the 2017 Tax Cuts and Jobs Act will sunset. Here’s what that would mean:
- The Qualified Business Income (QBI) deduction disappears, removing the 20% deduction many STR operators have relied on to lower their effective tax rate. You can learn more about QBI deductions here on Investopedia.
- Individual income tax brackets will revert to their pre-2017 levels—meaning higher rates for most investors.
- Bonus depreciation will fully phase out, eliminating the ability to immediately deduct large portions of property improvements through cost segregation.
- The standard deduction will shrink significantly, and personal exemptions will return, impacting how taxable income is calculated.
For STR investors, the expiration of these cuts could mean:
- Increased annual tax liabilities, especially for properties producing strong net operating income.
- A reduced ability to shelter income through accelerated depreciation.
- Less favorable treatment for pass-through entities like LLCs.
In short, losing these provisions could compress profit margins for short-term rental operators—especially those who have recently expanded their portfolios or rely on cost seg strategies to improve cash flow.
Action Steps for STR Investors
While nothing is finalized, STR investors should consider the following moves:
- Evaluate your current entity structure to ensure it’s optimized for both income and tax strategy.
- Plan a cost segregation study for any new or recently improved STRs. You can connect with a Chalet cost segregation specialist for FREE.
- Model your 2025 tax scenarios with and without the Trump-era provisions.
- Consult with a tax advisor to stay flexible depending on how legislation evolves. Click here and get a free consultation with tax advisor specialized in STR.
What Is Cost Segregation, and Why Does It Matter?
Cost segregation is a powerful tax strategy that allows real estate investors to accelerate depreciation on components of a property—such as furniture, appliances, flooring, and certain construction improvements. Instead of spreading deductions evenly over 27.5 years, a cost seg study identifies portions that can be written off over 5, 7, or 15 years.
When bonus depreciation is available, these accelerated deductions can often be claimed immediately in year one—providing massive upfront tax savings.
This is especially important for STR investors who have recently purchased, renovated, or furnished their properties.
Final Thoughts
Tax reform isn’t just a Washington headline—it’s a bottom-line issue for STR investors. The return of Trump-era tax cuts could reopen powerful opportunities to reduce taxable income, improve cash flow, and build wealth faster through real estate.
Whether you’re considering a property purchase or reviewing your 2024 tax plan, now is the time to act. The decisions being made in Congress this year will shape your investment outcomes for years to come.
👉 Need guidance? Connect with our cost segregation expert to explore your options and make smart, proactive tax moves today.
