Restored bonus depreciation provisions in 2025 are creating tax advantages for short-term rental (STR) investors that long-term residential landlords cannot access, according to Lucas Piper, owner of Five Star Vacation Home Rentals in Austin. Piper argues that these tax benefits are the strongest reason to prioritize STR investments over traditional rental strategies in the coming year.
“In 2025, there is legislation passed that brought back 100% bonus depreciation,” Piper says. “The tax incentives right now for short-term rentals are something you can’t find in long-term rentals. You can really only find that in commercial or multifamily.”
This distinction is significant because commercial and multifamily investments typically require more capital and experience than most individual investors possess. Short-term rentals, Piper notes, now offer similar tax advantages at a scale accessible to individual owners.
How Bonus Depreciation Alters the Investment Landscape
Bonus depreciation allows STR operators to accelerate depreciation deductions, sharply reducing taxable income in the years after property acquisition. The full 100% bonus depreciation provision returns in 2025 after being phased out in previous years, creating what Piper sees as a time-limited opportunity for investors.
“For me personally, especially with expertise in the field, there’s no question that short-term rentals are still the best investment to make,” Piper says. He bases this on the tax treatment: “If I had an extra million, I would try to get a number of properties with that. I would do a cost segregation study or two every single year to get my taxable income as low as possible.”
Cost segregation studies break down property components into categories with shorter depreciation schedules, amplifying the bonus depreciation effect. According to Piper, using these methods together can reduce taxable income to nearly zero, even as the properties generate positive cash flow.
This means an investor can purchase several short-term rental properties, earn income from guest bookings, and reduce taxable income through depreciation strategies that surpass the actual out-of-pocket investment. Piper argues that long-term rental investors do not have access to these same benefits.
Creative Financing Opportunities in a Buyer’s Market
These tax advantages are even more attractive when combined with new financing opportunities in Austin’s current real estate market. “We are the worst real estate market in the nation right now,” Piper says, describing Austin as a strong buyer’s market and a difficult environment for sellers.
This has prompted sellers to offer creative financing terms. “There are some really good opportunities right now with creative financing,” Piper observes. “A lot of people with properties are struggling, and you’re able to get a lower rate through creative financing.”
Piper specifically points to seller financing, where owners with significant equity serve as the lender. “If people have a ton of equity in their properties, they’re essentially able to be the bank at that point,” he explains. These sellers can offer below-market interest rates and lower down payment requirements, while deferring capital gains taxes through installment sales.
“They might set a rate at 4.5% and only want 10% down, so you’re getting into a property for 10% instead of 20 or 25%,” Piper says. With conventional mortgage rates still near 6%, investors can acquire property with a smaller down payment and lower interest rates, while accessing substantial tax deductions through bonus depreciation.
Active Management Required for Tax Benefits
However, Piper emphasizes that these tax advantages depend on active property management. The benefits apply only to properties actively managed as short-term rentals, not to passively held investments. “Unless you’re competing to be the best right now, I don’t think you’re going to make it,” Piper says of the Austin market.
Property quality and operational performance are critical for generating enough cash flow to justify an acquisition. Piper’s company maintains a 4.95 average rating across nearly 4,000 reviews and earns “guest favorite” status on 95% of its portfolio—performance levels he considers necessary for success in today’s competitive environment.
For investors without operational experience, Piper recommends working with established property managers. “My encouragement is to make sure you’re finding a network of people that can challenge you and push you and ask hard questions,” he says.
Comparing Investment Alternatives
When asked how he would allocate $1 million in Austin real estate today, Piper’s strategy centers on the tax advantage. “I would try to get a number of properties with that. I would do a cost segregation study or two every single year to get my taxable income as low as possible,” he says.
Acquiring multiple properties with creative financing, then using cost segregation and bonus depreciation to minimize tax liability, is, in Piper’s view, the most effective use of capital in the current environment. He argues that the combination of operational cash flow, appreciation potential, and tax efficiency is difficult to match with other real estate strategies.
The duration of this tax opportunity depends on future legislative decisions about bonus depreciation. For now, Piper suggests that investors with available capital and either operational expertise or access to experienced managers have a unique window to benefit from these incentives. This window may not remain open beyond 2025.
