Airbnb vs Long-Term Rentals: Tax Impact 2025
Investors often ask: “Should I focus on short-term rentals (Airbnb) or long-term rentals?” The answer isn’t just about cash flow — it’s also about how the IRS treats each type of investment for tax purposes. Understanding these differences can mean thousands of dollars in either tax savings or missed opportunities.
Short-Term Rentals (Airbnb)
- Typically treated as an active business for tax purposes.
- Do not require real estate professional status to offset losses against other active income (like W-2 or business income).
- Furnishings, renovations, and improvements can qualify for bonus depreciation in 2025.
- Higher involvement, more turnover, and often higher management fees.
Long-Term Rentals
- Generally classified as passive unless you qualify as a real estate professional under IRS rules.
- Only with real estate professional status can losses offset other active income, including business or W-2 wages.
- Depreciation normally spreads over 27.5 years.
- A cost segregation study can accelerate depreciation by reclassifying components (carpets, appliances, landscaping, etc.) to 5, 7, or 15-year property.
- Lower day-to-day management requirements compared to Airbnbs.
Tax Example
Investor A (Airbnb): Buys a $300,000 property and spends $30,000 on furnishings and upgrades. As a short-term rental, the activity is treated as an active business. With bonus depreciation, most of the $30,000 can be deducted in year one — and the loss can offset W-2 or business income.
Investor B (Long-Term Rental): Buys a $300,000 property. Under standard rules, depreciation is about $11,000 per year over 27.5 years. With a cost segregation study, $50,000+ of depreciation could be accelerated into year one. To use those losses against other active income, however, they must qualify as a real estate professional.
The Bottom Line
Both Airbnbs and long-term rentals can use accelerated depreciation. The key difference is classification:
- Airbnbs are often treated as active businesses, so losses can offset other active income without real estate professional status.
- Long-term rentals can accelerate depreciation too, but losses generally offset other active income only if you qualify as a real estate professional.
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