Methodology and Sources

Most pages that explain the short-term rental tax loophole ask you to take the numbers on faith. This one shows the work. Each figure below points to the tax code, the IRS guidance that interprets it, or the published charts that track how states respond. You can check any of it against the original.

This page is educational and is not tax advice. It explains how the estimate is built, not what you personally owe. A CPA who handles cost segregation and short-term rentals confirms your specific situation.

The federal numbers

The federal side of the estimate is the part the calculator can state with confidence, because the law settled it.

Tax brackets and standard deductions. The 2026 brackets and standard deductions come from IRS Revenue Procedure 2025-32, announced in release IR-2025-103. The calculator subtracts the standard deduction for your filing status from your income, then finds your marginal rate in those brackets, so the rate reflects taxable income rather than gross pay.

Bonus depreciation. The One Big Beautiful Bill Act, Public Law 119-21, restored 100% bonus depreciation under Section 168(k) on a permanent basis for property acquired on or after January 20, 2025. IRS Notice 2026-11 issued the interim guidance and removed the placed-in-service deadline that used to cap it. The calculator defaults to 100% and keys the rate off the contract date, which is the date the law actually tests.

Cost segregation and the depreciation schedule. A cost segregation study moves part of the building into 5, 7, and 15-year property, which is what bonus depreciation can write off in full. Most studies reclassify 20 to 30% of the building, so the calculator lets you pick a percentage in that range. The rest of the building depreciates over the standard 27.5-year schedule under Section 168.

The two rules behind the qualifying gate

The calculator asks whether your average guest stay is seven days or fewer because that single question decides whether the strategy is even available. Two parts of the code do the work.

The seven-day test comes from Treasury Regulation 1.469-1T(e)(3)(ii)(A), which pulls a short-stay rental out of the passive rental category. Material participation comes from Section 469 and Treasury Regulation 1.469-5T, and it is what makes the loss deductible against your salary. The personal-use limit that can undo the whole thing sits in Section 280A and IRS Publication 925. The full version of these rules, including the manager trap that disqualifies most owners, lives on the material participation page.

How the calculator handles state taxes

The federal rate is fixed. State treatment is not, and this is where most calculators would quietly hand you a wrong number. Many states have decoupled from federal bonus depreciation, and a few changed their position in 2026, with New Mexico decoupling in May 2026 and Oregon shifting in April 2026. A tool that hard-codes a confident figure for all fifty states starts decaying the month after it ships.

So the calculator sorts your state into one of three tiers. States with no wage income tax show $0, because there is no state tax to offset. States confirmed to have decoupled show $0 with the reason stated, since they require the 27.5-year schedule for state purposes. States that still conform or whose status is uncertain show a flagged estimate that tells you to confirm with your CPA, rather than a number dressed up as settled. The tier assignments come from the Bloomberg Tax chart tracking state conformity to federal bonus depreciation and from the Tax Foundation analysis of expensing and conformity under the new law.

How the estimate is calculated

The calculator runs the same sequence a CPA would sketch on paper, in this order:

The result is a range rather than a single figure on purpose. A cost segregation study produces the real reclassification percentage, and your own facts shift the number, so a band is the honest way to show it before a study exists.

What the estimate does not include

The number is a planning estimate, not a tax return. It assumes you materially participate, that you have enough basis and at-risk amount to use the loss, and that your contract was signed on or after January 20, 2025. It does not include the $3,000 to $8,000 cost of the cost segregation study itself, state income tax in conforming states beyond the flagged estimate, depreciation recapture on a future sale, or any facts specific to you that a CPA would weigh. The brackets are updated each year as the IRS publishes new figures.