100% bonus depreciation is back. Here's what that means for luxury new construction and short-term rental investors in the Vail Valley.
Why this moment matters for investors.
What advisors and investors are calling the "Big Beautiful Bill" is recent tax legislation that, among other things, restored 100% bonus depreciation, creating a powerful opportunity for real estate investors, particularly in the short-term rental space.
Under the right conditions, this change makes it possible to generate very large first-year tax deductions when purchasing and operating a qualifying property. At the luxury level, those deductions can be material enough to reshape how a buyer thinks about timing, structure, and where to deploy capital.
How depreciation normally works.
When you purchase a residential investment property, the IRS allows you to depreciate it over 27.5 years.
For example: a $10M property might produce roughly $275K to $310K per year in depreciation, steady but relatively modest compared to the property value.
What cost segregation does.
A cost segregation study breaks the property into components and assigns them shorter depreciation timelines:
- 5-year assets, appliances, certain finishes, furnishings
- 7-year assets
- 15-year assets, landscaping, exterior improvements
This allows a significant portion of the property to be depreciated much faster.
The mechanics, continued.
What the Big Beautiful Bill changed.
The key change was restoring 100% bonus depreciation. Assets with shorter depreciation lives can now be fully written off in the first year.
Bonus depreciation had been reduced and was phasing down.
Returned to 100%, dramatically increasing first-year deductions.
Why short-term rentals are different.
Normally, real estate losses are passive and can only offset passive income. Short-term rentals can qualify for different treatment if:
- The average stay is typically 7 days or less
- The owner meets participation requirements
When those conditions are met, losses may offset business income, commission income, investment income, and in some cases W-2 income.
Putting it all together.
Stack the three together — cost segregation, 100% bonus depreciation, and short-term rental tax treatment — and the combined effect can produce a very large first-year paper loss. At the luxury level, this can translate into multi-million dollar first-year deductions, fundamentally changing the after-tax economics of a purchase.
What this looks like on an $18.5M new construction purchase.
New construction often maximizes this strategy. Costs are clearly defined, a higher percentage qualifies for shorter-life categories, and luxury finishes increase eligible components.
Illustrative range. Verify with a qualified CPA.
How the outcome shifts with the property.
Three realistic outcomes on the same $18.5M property:
Standard finishes, owner-managed STR.
Cost segregation runs in the lower band (~25% reclassification). No furnishings package, modest outdoor improvements.
Owner meets STR participation requirement. Core property cost seg only.
Luxury new construction, professionally managed.
Cost seg runs mid-range (~30–35% reclassification). Furnishings included. High-end finishes, outdoor living, automation contribute.
Full STR qualification documented. Furnishings invoiced separately for cleaner asset classification.
Fully loaded, every lever pulled.
Cost seg in the upper band (~40%+ reclassification). Full furnishings, extensive outdoor build-out, AV, water and fire features.
Engineering-grade cost seg study. Higher-risk classifications validated by CPA.
What pushes the number up, and what pulls it down.
Four factors determine where any deal lands in the range.
Cost segregation depth.
An engineering-grade study can reclassify 30–40%+ of basis. A standard study may only capture 20–25%. The delta is millions.
Luxury asset density.
High-end finishes, furnishings, outdoor improvements, AV and automation, detached structures all add to the shorter-life asset base.
STR participation rules.
Average stay must be 7 days or less and the owner must meet IRS participation requirements. Failing either pushes losses back into passive.
Entity and offsets.
The deduction is only valuable if there is offsettable income. Entity structure and income type matching determine real benefit.
Why this is a moment worth acting on.
The federal framework outlined here is currently in effect and stable. There is no discussion we're aware of at the federal level around revisiting bonus depreciation, cost segregation, or short-term rental tax treatment.
- Many investors still aren't fully aware of how these rules stack
- The right cost segregation work and structure takes lead time to do well
- Advisor and CPA capacity for this specific work is finite
- Demand is concentrating around properties that best capture these benefits
There is one piece of state-level legislation worth being aware of as a Colorado investor.
A brief note for Colorado investors.
Colorado is advancing legislation that would eliminate certain upfront state-level tax benefits beginning in 2027, including the ability to claim cost segregation deductions at the state level. It would not affect the federal portion of this strategy.
HB26-1222 has passed committee and continues to advance. Worth tracking, but not central to the federal opportunity outlined here.
leg.colorado.gov/bills/HB26-1222The key facts, in one frame.
100% bonus depreciation restored. No federal discussion around revisiting it, cost segregation, or STR tax treatment.
State-level bill eliminating upfront state benefits beginning 2027. Federal portion unaffected.
Clearly defined cost basis, higher percentage eligible for shorter-life categories, fresh furnishings available for reclassification.
Average stay 7 days or less, owner meets IRS participation requirements, suitable holding structure. Engineering-grade cost seg study.
A direct path to the right specialists.
I have a strong, vetted contact for leveraging this tax incentive, plus a contact for cost segregation and CPAs fully up to speed on this segment. The introduction is straightforward and obligation-free.
- Information current as of May 2026; sources include public reporting on federal tax legislation and the Colorado General Assembly bill tracker for HB26-1222.
- Underlying calculations and reference materials are available on request.
- Verify all figures independently with a qualified CPA or tax advisor before making any investment or tax-related decisions.
- This document is not legal, financial, or investment advice. Malia Cox Nobrega is a licensed real estate professional, not a tax advisor.
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