How to Offset W-2 Income with Airbnb Bonus Depreciation
By Virtual Cost Segregation
High‑income W‑2 earners looking to reduce taxable income with real estate tax benefits can use short‑term rentals (like Airbnb or VRBO) combined with bonus depreciation, but there are specific IRS rules and participation tests you must meet to use it effectively.
Bonus Depreciation
Bonus depreciation allows property owners to deduct a large portion of qualifying property costs in the year the property is placed in service. After recent tax law changes (OBBBA), 100% bonus depreciation was restored for qualifying property acquired and placed in service after January 19, 2025. This unlocks a major accelerated deduction opportunity for STR investors.[1]
To maximize bonus depreciation:
- Perform a cost segregation study to reclassify components (like furniture, appliances, flooring) into shorter‑life asset classes (5, 7, or 15 years). Hint: we can help with that!
- These reclassified assets can then be fully written off in year one, generating substantial depreciation tax benefits.
Passive vs. Active (Non‑Passive) Income
By default, rental properties are passive activities under IRS rules, meaning that losses (including depreciation) cannot offset W‑2 wages. They can only offset passive income from your rentals.[2]
Even if your investment is passive, cost segregation and bonus depreciation can be helpful in offseting most or all of your rental income within the first few years, since untapped bonus depreciation can roll over into the next year.
Non-passive rentals:
Airbnb and other short‑term rentals can be treated as non‑passive if ALL of the following criteria are met:
- Short‑Term Rule: Average stay is 7 days or less, or significant services are provided.[3]
- Material Participation: You materially participate in the STR business (meets one of the IRS tests, such as spending >500 hours/year or meeting other participation tests).[3]
When STR activity is considered non‑passive, your bonus depreciation losses can directly offset W‑2 income, unlike traditional long‑term rentals.[4]
IRS Exceptions If You Don’t Qualify for STR Rules
If you cannot reclassify the activity as non‑passive, you may still use some losses against W‑2 income through:
- Active Participation Exception: Deduct up to $25,000 of rental losses against ordinary income if you actively participate and your Modified Adjusted Gross Income is within certain limits ($100K–$150K).[2]
- Real Estate Professional Status: If you or your spouse qualify as a Real Estate Professional (REP) (750+ hours/year and other tests), rental losses—including those generated by bonus depreciation—can be used against your W‑2 wages without passive loss restrictions.[2]
Examples and Calculations
Imagine you purchased a $200,000 short-term rental property, and placed it into service in 2026, and self-manage it. If 20% of the property assets are reclassified via a cost segregation study, bonus depreciation allows a tax deduction of $40,000, offsetting your rental income and your W-2 income.
If this strategy interests you, try our cost segregation calculator to estimate your potential tax savings, or explore our cost segregation services to get started.
Final Note: IRS rules are complex and subject to change. Always consult a qualified CPA or tax advisor before implementing strategies to offset W‑2 income with bonus depreciation in your Airbnb or STR business.
References
[1]The STR Tax Loophole 2025: How to Offset W-2 Income With Airbnb Losses - The Offer Sheet
[2]How Bonus Depreciation Works for Rental Property - LegalClarity
[3]TurboTax Community: Short-term rental losses against W2 income
[4]How to Maximize Tax Savings - Short-term Rental Tax Loophole - Attracct Accounting Advisors