Section 179 for Airbnb: Maximize Your Tax Deductions

Furnishing a new Airbnb property or renovating an existing one involves a significant upfront investment. Many hosts face costs of $20,000 to $50,000 or more to create an inviting, well-equipped space that commands premium nightly rates. This expense can be daunting, especially for new hosts entering the short-term rental market.

Many Airbnb hosts don't realize these expenses can become tax advantages. Savvy investors know that leveraging tax deductions for Airbnb hosts improves cash flow and accelerates investment returns. Among these strategies, the Section 179 deduction stands out as a game-changing tool.

At STR Cribs, we help investors create high-performing rentals, including smart, tax-efficient furnishing decisions from day one. This article demystifies the Section 179 deduction, explains its application to STR furnishings, and shows how strategic design and furnishing choices can maximize guest appeal and tax benefits.

What is the Section 179 Deduction?

The Section 179 deduction allows business owners to deduct the full purchase price of qualifying equipment and software bought or financed during the tax year. Unlike traditional depreciation, which spreads the deduction over years, Section 179 enables you to take the entire deduction in the year the property is in service. This means you can immediately reduce your taxable income by the full cost of your qualifying purchases, rather than waiting years for the tax benefit.

The government created this tax incentive to encourage small businesses, including Short-Term Rental (STR) businesses, to invest in themselves. Section 179 improves cash flow and makes substantial purchases more feasible for business owners by allowing immediate expensing rather than long-term depreciation.

Key rules for the Section 179 deduction include:

• Maximum Deduction: You can deduct up to $1,160,000 in qualifying expenses.
• Investment Limit: The deduction starts to phase out dollar-for-dollar when you purchase over $2,890,000 of qualifying equipment.
• Business Use Requirement: To qualify, the property must be used for business purposes over 50% of the time.
• Timing: The property must be purchased (or financed) and placed in service during the tax year you claim the deduction.

How Section 179 Applies to Your Airbnb Business

For a dedicated Short-Term Rental property used exclusively for renting to guests, meeting the "more than 50% business use" requirement is straightforward. If you're renting your property consistently on Airbnb or other platforms and not using it personally, you're above the threshold to qualify for the Section 179 deduction.

The situation becomes more complex with "hybrid" properties, like a vacation home that you both rent out and use. You must track the days the property is rented versus used personally. If your personal use exceeds 14 days or 10% of the rental days (whichever is greater), the IRS may classify the property as a personal residence rather than a business property, jeopardizing your Section 179 deduction. Meticulous record-keeping is essential, documenting each night the property is rented, available for rent, or used personally.

What Furnishings and Equipment Qualify for the Deduction?

Understand that the building and permanent land improvements don't qualify for Section 179. The focus is on tangible personal property used in your STR business. For Airbnb hosts, this means the furniture and equipment that make your rental functional and appealing to guests.

Examples of qualifying property for Section 179 in your Airbnb include:

• Furniture: Beds, sofas, tables, chairs, dressers, desks, nightstands, bookshelves, dining sets.
• Appliances: Refrigerators, ovens, washing machines, dryers, dishwashers, microwaves, coffee makers, blenders
• Electronics: Smart TVs, Wi-Fi routers, smart locks, security cameras, sound systems, gaming consoles
• Decor & Other Items: Rugs, lamps, artwork, mattresses, linens, kitchenware (if it lasts over a year), window treatments
• Outdoor Items: Grills, patio furniture, hot tubs, outdoor lighting, fire pits

When designing a property, STR Cribs focuses on curating a complete, guest-ready experience. Nearly every furniture and equipment piece we select for our clients, from the statement sofa to the high-thread-count sheets, is qualifying property for Section 179.

Section 179 vs. Bonus Depreciation vs. Regular Depreciation (MACRS)

Understanding the differences between these three depreciation methods is crucial for informed tax decisions for your Airbnb business.

Section 179 Deduction

• Elective: You choose whether to take it and which qualifying assets to apply it to.
• Selective: You can choose which assets to apply it to, allowing for strategic tax planning.
• Limits: Subject to annual deduction limit ($1,160,000) and investment limit ($2,890,000).
• Income Rule: You can't claim a Section 179 deduction that exceeds your net business income for the year (it can't create a business loss).

Bonus Depreciation

• Automatic: By default, it applies to qualified property unless you opt out.
• Broad: Applies to all qualifying assets in the same class; you can't pick and choose like with Section 179.
• No Income Limit: Can create or increase a net operating loss, which is beneficial in some tax situations.
• Current Rate: The rate is 80% for property placed in service, allowing an upfront deduction of 80% of the cost, with the remaining 20% depreciated over the asset's useful life using MACRS. This rate is phasing down: 60% in 2024, 40% in 2025, 20% in 2026, and 0% in 2027.

Regular Depreciation (MACRS)

The "default" method, the Modified Accelerated Cost Recovery System (MACRS), is used if you don't use Section 179 or bonus depreciation. It spreads the cost of an asset over its IRS-determined "useful life." For most Airbnb furnishings and appliances, this is 5 years; for office equipment, it's 7 years. This method provides a smaller annual deduction compared to Section 179 or bonus depreciation but spreads the tax benefit over multiple years.

Which is Right for Your STR?

The optimal strategy depends on your overall financial picture, including current and future income and other tax considerations. Section 179 offers more control over which assets to expense immediately, while bonus depreciation is simpler to apply but less selective. If you are in a high tax bracket this year but expect lower income later, taking maximum deductions now through Section 179 might be advantageous. Conversely, if you anticipate a higher future tax bracket, spreading deductions through regular depreciation could be beneficial.

This complexity underscores the importance of working with a qualified CPA who can model different scenarios based on your financial situation and help you make tax-efficient decisions.

Potential Pitfalls: The Section 179 Recapture Rule

While Section 179 offers benefits, Airbnb hosts should be aware of the "recapture rule" to avoid unexpected tax consequences. This rule applies if you claim the Section 179 deduction on an asset, and then in a later year, the business use drops to 50% or less.

If this happens, the IRS can "recapture" (take back) a portion of the tax benefit you previously received. You report as ordinary income the difference between the Section 179 deduction you took and the depreciation under the normal MACRS method.

If you furnished an Airbnb and took a $30,000 Section 179 deduction, then two years later converted the property to personal use, you need to recapture the remaining value of the deduction beyond the standard depreciation.

This recapture rule underscores the importance of maintaining your property's primary use as a business asset throughout the furnishings' useful life and keeping excellent records of your property's use and deducted assets.

Conclusion

The Section 179 deduction allows Airbnb hosts to reduce their tax burden by expensing furnishings and equipment costs upfront. This strategy lets you immediately offset your taxable income, instead of waiting years for tax benefits through standard depreciation, accelerating your ROI and improving cash flow in the early stages of your STR business.