This Week’s News & Insights

Good morning,

Dom here.

Can’t trust your CEO or HR nowadays.

But you can trust I'll bring you the best STR news every Wednesday 😉

Here’s what’s going on in the short-term rental world this week:

Booking.com’s Q2 earnings point to a continued shift from hotels to vacation rentals, Airbnb’s eyeing a loyalty program to lock in repeat travelers, and Panama’s hotel lobby is calling STRs “unfair competition.”

This week in the markets: Mortgage rates just hit their lowest point since October after a weaker-than-expected jobs report last Friday, Newport Beach slashes new STR permits to just 56, and new countries are teaming up with Airbnb and Booking.com to crack down on unlicensed listings.

Lets dive in. 

NEWS

Headline Roundup

• 5 Key Insights for the STR industry from Booking.com’s Q2 Earnings (The Host Report)

• Hotel Lobby in Panama Calls Airbnb 'Unfair Competition' (Newsroom Panama)

• Airbnb’s Considering Launching a Loyalty Program (Bloomberg)

• How NYC Hotels Use Regulations to Block Airbnb Competition (AEI)

• Casago Picks Wheelhouse as Exclusive Pricing Engine After Vacasa Deal (The Host Report)

• eviivo Adds SMS and WhatsApp to Guest Messaging (The Host Report)

• PriceLabs Becomes Official Booking.com Connectivity Partner (The Host Report)

• Oyo Buys Airbnb Management Platform MadeComfy for Over $50 Million (AFR)

• Journey Raises $7.7M to Expand Hospitality Loyalty Platform (PhocusWire)

• Crew Raises $3M to Scale Services for STR Owners (Utah Business)

Custom Maps: The Easiest Way to Boost Your Bookings

INTERESTING INSIGHTS

How Depreciation Recapture Works + 3 Strategies to Avoid it

Everyone talks about bonus depreciation allows high income earners to save a ton of tax money with STR’s, but most don’t talk about depreciation recapture and how to plan for it.

What Is Depreciation Recapture?

When you sell a rental property, the IRS claws back a portion of your previously claimed depreciation as taxable income. The rate depends on how the assets were depreciated and will vary for things like appliances, building structure, and gains from the property’s price appreciation over time. 

A Simple Example:

Let’s say an investor buys a STR in 2022 for $600,000.

Then, they hire a specialist to do a cost segregation study, allowing them to immediately write off $150K in bonus depreciation that same year. 

This large paper loss helps reduce their taxable W-2 income, saving them around $48,000 in federal taxes that year, if they’re in the 32% bracket.

What Happens When the Property Is Sold

Three years later, in 2025, the investor sells the property. 

By then:

• They wrote off $150K through bonus depreciation (year 1)

• They also claimed another ~$27K of regular depreciation over the next 3 years

• Total depreciation taken = ~$177K

Now the IRS wants some of that tax savings back.

This is called depreciation recapture, and it’s taxed differently than normal capital gains. To keep things simple:

If the investor is still in the same 32% tax bracket, the total tax just on depreciation recapture is about $54,730.

3 Strategies to Offset or Defer Recapture

#1 Use Passive Activity Loss (PAL) Carryforwards
Review past tax returns for suspended PALs. These passive losses, which are often unusable in high-income years, can be unleashed to offset recapture income when the property sells.

#2 Complete a 1031 Exchange
Swap the property for another of equal or greater value and defer both capital gains and recapture. This strategy is ideal for scaling up without paying taxes now.

#3 Leverage a “1031 Lite” with Bonus Depreciation
If a full 1031 exchange isn’t feasible, buy a new property in the same tax year and conduct a cost seg study. The resulting bonus depreciation can offset gains and recapture from the previous sale without the rigid 1031 timeline.

Bottom Line

Yes, depreciation recapture reduces your windfall when you sell the property, but the upfront savings and reinvestment potential often outweigh the future tax hit. 

The core principle here is the time value of money: having immediate access to that $48K means more investment opportunities now, allowing you to compound growth and maximize returns for as long as you own the property, instead of giving it immediately to the IRS.

The key is knowing the recapture’s coming and planning around it. With the right strategy, you can reduce, defer, or even eliminate the worst of the damage.

Read the full article Here, written by Gabriel Virdaru, CPA. Gabriel is the CEO of Fortuna CPA PLLC, a real estate focused tax advisory firm that works with high income earners to develop customized strategies aimed at reducing tax liability and accelerating wealth building.

MARKET INSIGHTS

Mortgage Rate Snapshot

Mortgage rates dropped sharply on Friday after a weaker-than-expected jobs report and downward revisions signaled a softer labor market. By Tuesday, rates stabilized at the lowest level since last October.

Regulations Update

• Newport Beach, California, implemented a 75-unit permit cap for short-term rentals, leaving only 56 new permits available, along with stricter occupancy and parking requirements

• Kent County, Delaware, eased restrictions by removing the on-site owner requirement for STR properties smaller than 5 acres, aligning rules with long-term rental regulations

• Malta secured agreements with Booking.com and Airbnb to enforce regulations using the Malta Tourism Authority's licensed property list, while a national petition pushes for stricter on-the-spot fines

See this weeks full regulations report here: (The Host Report)