The Miami short-term rental tax strategy: 100% bonus depreciation, cost segregation and the 7-day rule

A furnished Miami condo bought after 19 January 2025 and rented to guests who stay seven days or less on average can deduct roughly 15 to 30% of its price in its first year, and that loss can offset salary or business income when the owner materially participates. On the three-unit, $1.77 million package we priced on 3 October 2026, with revenue measured on units we manage, that is about $346,000 of first-year deductions, worth about $128,000 of federal tax at the 37% bracket. Held five years at 80% financing and 6%, the two resales we measure return about 10 to 11% a year after tax, and 14 to 15% when the exit is a §1031 exchange.

Law as it stands on 3 October 2026: Internal Revenue Code §168(k) as amended by the One Big Beautiful Bill Act (Public Law 119-21, July 2025), IRS Notice 2026-11, Treasury Regulations §1.469-1T and §1.469-5T, IRC §461(l). Revenue: BlueBay's own QuickBooks ledger. Prices: MLS (Bridge Data Output, SEFMLS). This page is written by a licensed real estate broker, not a CPA: it explains the mechanism, your tax adviser applies it to you.

The mechanism

Five rules, one strategy

Each rule is in the tax code or the Treasury regulations. Together they turn a furnished short-term rental into a first-year deduction that a W-2 or business income can absorb.

100% bonus depreciation is permanent again

Property acquired and placed in service after 19 January 2025 can be expensed 100% in its first year, with no phase-down. It applies to property with a recovery period of 20 years or less, not to the building shell.

IRC §168(k), One Big Beautiful Bill Act (P.L. 119-21), IRS Notice 2026-11

Cost segregation finds what qualifies

An engineering study splits the price into land (never depreciable), the shell, and the personal property and improvements inside: furniture, appliances, removable finishes, specialty electrical and plumbing. In a furnished condo that last part is typically 15 to 30% of the building basis.

IRC §168(e), MACRS 5, 7 and 15-year classes

The shell is 39 years, not 27.5

A unit rented mostly to transient guests is not "residential rental property". Its shell is nonresidential real property, depreciated straight-line over 39 years from the month it is placed in service. Small in year one; the bonus does the work.

IRC §168(e)(2)(A), §168(c)

The 7-day rule takes it out of "passive"

A rental is passive by default (§469). When the average guest stay is seven days or less, the activity is not a "rental activity" at all. If the owner materially participates, for example more than 100 hours and not less than anyone else, or 500 hours, the loss is nonpassive and offsets ordinary income.

Treas. Reg. §1.469-1T(e)(3)(ii)(A) and §1.469-5T(a)

The cap: excess business loss

For 2026 a net business loss above $256,000 (single) or $512,000 (married filing jointly) cannot be used in the year. It is not lost: it carries forward as a net operating loss.

IRC §461(l), as made permanent by the OBBBA

A worked example

Three Miami units, revenue we measured

Three units listed for sale on 3 October 2026, in buildings where Property Management Brickell runs nightly rentals today. Revenue is our own ledger, not a market estimate. The bonus column uses a 12% land share and a reclassified share of 20% on the 2005 and 2009 resales, whose finishes are valued after wear, and 25% on the 2025 building, delivered furnished.

Unit	Asking price	Gross revenue / year	Revenue basis	Cap rate	Year-1 bonus (est.)	5-yr IRR after tax	With a 1031 exit
Icon Brickell, W tower · 1 bed	$545,000	$82,400	Two 1BR units we manage in this tower, trailing 12 months	6.1%	$95,900	11.0%	15.0%
The Club at Brickell Bay · 1 bed	$450,000	$58,500	A 1BR we manage in the building, investor base	5.9%	$79,200	10.3%	14.4%
District 225 · 2 bed, delivered 2025	$775,000	$83,500	A 2BR we manage in the building, March to August 2026 annualized	4.7%	$170,500	7.3%	12.2%
Total	$1,770,000	$224,400			$345,600

Asking prices: MLS, read 3 October 2026. Cap rate = unlevered net operating income ÷ price, after 12% co-host operations by Property Management Brickell (the owner runs pricing and guests, which is what the strategy requires), HOA, property tax re-estimated at 2% of price, insurance, utilities and 4% reserves. IRR = five years at 80% financing and 6%, rents and value +3% a year, sold at the end of year 5 with 7% costs and the tax on sale, or exchanged under §1031. The 13% Florida and Miami-Dade short-term rental taxes are collected from guests and are not owner revenue. Each unit links to its full study.

What the deduction is worth, three cases

Case	Land share	Reclassified	Year-1 bonus	Saving at 32%	at 35%	at 37%
Conservative	15%	15%	$226k	$72k	$79k	$83k
Central	12%	20-25%	$346k	$111k	$121k	$128k
Favourable	10%	30%	$478k	$153k	$167k	$177k

$496k

cash invested at 25% down and 3% closing costs

$346k

first-year deduction, central case

26%

of the cash invested, back in federal tax in year one at 37%

15%

five-year IRR after tax with a 1031 exit, Icon Brickell 1BR

The mortgage counts. Depreciation is computed on the full purchase basis, not on the cash put in, so leverage raises the deduction per dollar invested. Furniture bought for an unfurnished unit is 5 or 7-year property and qualifies on its own. A newly delivered, sold-furnished building such as District 225 tends to the favourable case; a 2005 or 2009 resale with older finishes tends to the conservative one.

Where it works

Downtown and Brickell buildings with nightly rental

The 7-day test needs a building whose rules allow nightly stays. Read on 3 October 2026 from the MLS. Recent closings are few, and asking prices sit above them: that gap is the negotiation.

Building	Delivered	Nightly rental	For sale	Median ask $/sf	2026 closings $/sf
The Club at Brickell Bay	2005	Operated by us today	24	$635	$558 (24)
Icon Brickell, W tower	2009	Operated by us today	36	$770	$696 (9)
District 225	2025	Operated by us today	37	$1,077	$881 (2)
501 First Residences	2026	Confirmed by BlueBay, Oct. 2026	39	$1,135	$854 (2)
The Elser	2022	Confirmed by BlueBay, Sept. 2026	56	$1,446	$1,140 (14)

For sale = active MLS listings in the building between $380,000 and $1.2 million for The Club and Icon, all prices for the others. "Operated by us" means Property Management Brickell runs nightly rentals in the building today; it is a fact about practice, not a legal opinion on any unit. Every unit still needs its city and state licences.

Hotel programmes work against this strategy

In a condo-hotel where the flag runs the rental (E11EVEN, Gale, the condo-hotel units of Smart Brickell), the operator logs more hours than the owner can. The material participation test then fails and the loss stays passive. Buy there for the yield, not for this deduction, unless the declaration lets you rent outside the programme.

What makes or breaks it

Six conditions to settle before closing

In service before 31 December

The deduction belongs to the year the unit is placed in service: closed, furnished and available for booking. A unit that closes on 20 December and is bookable on the 28th counts for 2026; one that slips into January counts for 2027, still at 100%.

Average stay of 7 days or less

Measured per property per year. Our managed units run three to four-night stays; a few monthly bookings can pull the average above seven and switch the rules back.

Material participation, logged

If a manager and cleaners log more hours than you, the 100-hour test fails. The workable set-up is a co-host split: you run pricing, guest messages and the listing and keep a contemporaneous log, Property Management Brickell runs cleaning, maintenance and check-ins for 12% of revenue.

No more than 14 days of personal use

Above 14 days, or 10% of the rented days, the unit becomes a residence under §280A(d) and the loss is limited. Stay elsewhere.

A real cost segregation study

An engineering-based study, a few thousand dollars per unit, is what survives an audit. A percentage applied by rule of thumb does not.

It is a deferral

On sale, the bonus taken on personal property is recaptured as ordinary income (§1245) and the building part at up to 25% (§1250). The answers are to hold, to exchange under §1031, or the step-up at death.

Questions we are asked

Is bonus depreciation 100% in 2026?

Yes, for property acquired after 19 January 2025. The One Big Beautiful Bill Act (Public Law 119-21, July 2025) restored 100% first-year bonus depreciation under IRC §168(k) permanently; the IRS issued interim guidance in Notice 2026-11.

Can a Miami condo qualify, or only a house?

A condo qualifies. The deduction comes from the furniture, appliances and finishes inside the unit, which a cost segregation study separates from the shell. A furnished, newly delivered condo often reclassifies a larger share than an older house.

Do I have to manage the rental myself?

For the loss to offset your salary, you must materially participate, which usually means more hours than anyone else on the property. Full third-party management or a hotel programme makes that hard. A co-host split, where you handle pricing and guests and we handle operations, is the arrangement investors use.

Does a mortgage reduce the deduction?

No. Depreciation is computed on the full purchase basis, including the borrowed part. At 25% down, the central case on our example returns about 26% of the cash invested in federal tax in the first year.

What does a Miami STR return after tax over five years?

On the units we measure, held five years at 80% financing and 6%, with rents and value growing 3% a year: about 10 to 11% a year after tax for a Brickell 1BR resale and about 7% for a new downtown 2BR, with a taxable sale. Exiting through a §1031 exchange defers the real-estate tax and lifts those to 12 to 15%. At 5% a year of appreciation, add about six points.

Is there a limit to how much I can deduct?

In 2026, net business losses above $256,000 (single) or $512,000 (married filing jointly) are deferred to later years as a net operating loss under IRC §461(l). They are not lost.

Tax-strategy package · 48h

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