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Today's track: It's Real — Real Estate
Congress rewrote a big piece of the tax code last July, and I keep running into owners who still haven't heard what it did for them.
If you own a furnished rental, an Airbnb or a midterm rental, or you're thinking about buying one, this is the issue to forward to your accountant.
One thing first. I'm a Realtor, not a CPA. A CPA is a certified public accountant, the person who signs your tax return. What follows is what the IRS rules say and what I've watched investors do for thirteen years. Your own CPA has to confirm it fits you. That's the whole reason I keep one close, and I'll tell you how to meet him at the bottom.
Here's what changed, in plain English.
1. Bonus depreciation is back at 100%, and it's permanent. Depreciation is the tax rule that lets you deduct the cost of a building a little at a time, usually over 27.5 years for a regular rental house. Bonus depreciation lets you deduct the full cost of certain pieces in year one instead. It was scheduled to shrink to 20% this year. The new law locked 100% back in for property you acquired after January 19, 2025. It isn't retroactive, and it covers property with a tax life of 20 years or less, which generally includes used property. That matters here, because most homes in Louisville are used.
2. Section 179 got bigger. It's another way for a business to deduct equipment and furnishings right away. The limit went from $1 million to $2.5 million, and it starts phasing out at $4 million. It can't create a loss on its own, which is why most rental owners lean on bonus depreciation, but it's a bigger tool than it was.
3. The 20% pass-through deduction is permanent. It's called the QBI deduction, short for qualified business income. If your rental counts as a business, you may be able to deduct up to 20% of the profit before your tax is figured. Whether a rental counts as a business is a facts question. The IRS has a safe harbor for rentals that log 250 hours of work a year. Ask your CPA.
4. Losses have a ceiling, and the ceiling is now permanent. Business losses can only offset so much other income in a year. For a married couple that's roughly $600,000, and the number adjusts every year. Anything over carries to next year. Worth knowing before anyone promises to erase seven figures.
5. The 1099-K threshold went back to $20,000 and 200 transactions. A 1099-K is the form payment platforms send you and the IRS. Fewer forms for small hosts. The income is still taxable.
6. Contractor forms start at $2,000 now, up from $600. That's the 1099-NEC and 1099-MISC, the forms you send your cleaner or handyman. This takes effect for payments made after December 31, 2025.
7. The cap on deducting state and local taxes went from $10,000 to $40,000 for 2025, for households under $500,000 of income. It phases down above that, creeps up 1% a year, and snaps back to $10,000 in 2030. The doctors and lawyers reading this who pay Kentucky income tax will feel that one.
8. The estate tax exemption is $15 million per person starting this year, and it's permanent. That's a different issue for a different day.
Now the part the internet blurs together: short-term versus midterm. They are not treated the same.
A short-term rental is the Airbnb. If your average guest stays seven days or fewer, the IRS stops treating it as a regular rental for the passive loss rules. Passive losses are losses from rentals, and normally they can only offset other passive income. If you also materially participate, meaning in plain terms you're hands-on, the loss can offset your W-2 paycheck. The most common way to qualify is more than 100 hours a year and at least as many hours as anyone else working on it, cleaners and property managers included. You don't have to be a full-time real estate professional. The average is total nights divided by number of bookings, so one 30-day stay can blow it up. Keep a time log. If you get audited, the log is your whole case.
Short stays also change the depreciation clock. When most guests stay 30 days or less, the building is treated like a hotel and depreciates over 39 years instead of 27.5. A slower clock is exactly why the study I'm about to explain matters even more on an Airbnb.
A midterm rental is 30 days or longer: travel nurses, people relocating, folks between houses, insurance stays. Here's the honest part. The seven-day rule does not apply to you. Midterm plays by the regular rental rules, so the losses are passive. They can offset passive income, or they get saved and used against future passive income or the profit when you sell. They don't offset a paycheck, with one big exception. If one spouse qualifies as a real estate professional, that's 750 or more hours a year in real estate and more than half of that spouse's total working time, then on a joint return the rental losses can offset the other spouse's W-2. The hours are tested one spouse at a time. You can't add them together to reach 750. The small $25,000 allowance for hands-on landlords fades out between $100,000 and $150,000 of income, so it does nothing for a doctor or a lawyer.
So there are two doors for a high-earning household. One: the Airbnb, where the person with the W-2 job logs the hours and keeps the average stay under seven days. Two: the spouse who qualifies as a real estate professional, which is how a doctor married to a full-time investor can pay a lot less tax on a paycheck. When the numbers, the hours, and the paperwork all line up, a couple can take a W-2 tax bill way down in year one, sometimes close to zero. Notice how much work the word when is doing in that sentence.
What makes those losses show up? Cost segregation.
When you buy a house, the default is to treat the whole building as one lump and depreciate it over 27.5 or 39 years. A cost segregation study is an engineer's report that breaks the purchase into its parts: flooring, cabinets, light fixtures, appliances, furniture, fencing, the parking pad. It sorts them into 5, 7, and 15 year buckets. Anything with a life of 20 years or less qualifies for bonus depreciation, so those buckets can come off in year one.
Furnished rentals are almost built for it, because there's so much more to sort. Studies commonly move somewhere around a quarter of the building's value into those short buckets.
Here's an illustration. Say you buy a $300,000 furnished rental and $40,000 of it is land, which never depreciates. That leaves $260,000 of building and contents. If the study moves 25%, that's $65,000 deducted in year one. At a 32% federal bracket that's about $20,800 less tax, if the loss can be used under the rules above. Without the study, the same building depreciates roughly $6,700 a year over 39 years. That's an illustration, not Logan Street's numbers and not a promise.
One Kentucky wrinkle. Kentucky doesn't follow federal bonus depreciation, so the big first-year write-off lands on your federal return while your Kentucky return uses a slower schedule. Your CPA has to track two sets of depreciation. Ask whether yours does. Kentucky's income tax rate is 3.5% this year, so the state difference is smaller than the federal benefit.
Already own one? A look-back study lets you catch up on depreciation you never took. Your CPA files a form called a 3115, and the catch-up lands on this year's return with no amended returns. The bonus rate is set by the date the property was placed in service, not the date of the study.
Now the downside, because there always is one. This is timing, not free money. When you sell, the IRS takes some of it back. The furniture and equipment part is taxed as ordinary income, up to 37%. The building part is taxed up to 25%. People manage that three ways: hold a long time, do a 1031 exchange (selling and rolling into another investment property to defer the tax), or use the deduction in a year when their income is high. Our capital gains and 1031 exchange estimator runs the numbers for free. Plan the exit before you buy.
Which brings me to Logan Street.
769 Logan Street in Smoketown is a 1900 camelback shotgun: three bedrooms, two baths, 1,504 square feet, remodeled top to bottom, zoned commercial, listed at $289,900. You can walk to Logan Street Market, Shelby Park, and Trellis Brewing. It ran as an Airbnb through this spring's Derby, and the furniture can convey with a competitive offer. Here's our Smoketown neighborhood guide if you want the lay of the land.
769 Logan Street, Smoketown.
The living room, furnished the way it ran as an Airbnb.
The kitchen. Tap any photo to see the rest of the listing.
Why is it for sale? The owners, Felix and Hilda, bought it as part of a tax and investment strategy and are selling to finish out their cost segregation plan. Their goal was never to squeeze every dollar of revenue. They wanted the house to cover its own costs and give them the tax benefits.
Hilda is a CPA, so she knew what the rules could do before they bought. Here's how she tells it, in her own words:
The year my husband and I bought our short-term rental, we were staring at a pretty hefty tax bill. And I remember thinking… we have two choices. We can write Uncle Sam a big fat check, kiss that money goodbye, and take a hit on our net worth. OR… we can figure out how to put that money to work for US!
As a CPA, I knew that short-term rentals could offer some pretty incredible tax advantages when structured properly. So that's exactly what we did!
We bought the property, did a cost segregation study, and took advantage of the tax deductions available to us. And here's where it gets REALLY interesting…
Not only did we eliminate the additional taxes we were expecting to owe, but Uncle Sam actually sent us a REFUND that was BIGGER than the down payment we'd made on the property!
Read that again. 😂 We bought an income-producing asset, got back MORE in tax refunds than we initially put down, AND WE STILL OWNED THE PROPERTY!
Now, think about this for a second…
Imagine buying a dollar's worth of real estate using just 20 cents of your own money. Depending on your tax situation, you could potentially generate tax deductions greater than the cash you actually invested. And here's the kicker… that same property could generate rental income, build equity, and appreciate over time!
I mean… WHAT OTHER INVESTMENT lets you do all that?! 🤯
And THAT is what people often miss. Tax strategy isn't just about paying less in taxes. It's about BUILDING WEALTH!
Now, I know people are nervous about mortgage rates right now, and I get it! But here's something most people overlook: higher interest rates can also mean larger tax deductions. Does that automatically make a higher interest rate a good thing? Of course not! You still have to run the numbers. But it DOES mean that looking at the mortgage rate alone doesn't tell you the whole story.
And that's really my point. When you're investing, you have to look beyond what something costs and understand what it can do for your overall financial picture. Because one of the FASTEST ways to put more money in your pocket isn't to make more money… it's to KEEP more of the money you've already earned!
This is one owner's personal experience, shared with permission. It is not financial, tax, or legal advice, and your results will differ. Whether and how much you can deduct depends on your income, how many hours you work on the property, how it's used, and the rules in effect for you. I'm a Realtor, not a CPA. Talk to your own CPA before you act on any of it.
Here's what it grossed, before any expenses. About $36,300 in 2024, over 115 nights, 31% occupied. About $38,900 in 2025, over 172 nights, 47% occupied. About $14,000 through Derby this year, over 60 nights, 49% occupied. They ran it hands-off. They blocked the calendar when life got busy, and they missed repricing Derby weekend, which Hilda figures cost about $4,500. That's gross revenue, not profit, from owners who weren't chasing bookings. An owner who keeps the calendar open and prices Derby week like Derby week has room to do better. I won't tell you how much better, because nobody knows that yet.
Why Kentucky for this? Start with how many people show up.
Kentucky had a record 2025: 81.1 million visitors who spent $10.4 billion, a $14.6 billion total economic impact, nearly 97,000 jobs, and the fourth straight record year. The Kentucky Bourbon Trail drew 2.7 million visits. Louisville locked in a new ten-year deal to keep Louder Than Life and Bourbon & Beyond, so the visitors aren't all showing up on one weekend in May.
Now the Airbnb numbers, with the caveat that every tracker counts a little differently. AirDNA counts 3,215 active short-term rental listings in Louisville as of August, down about 20% from a year ago. Fewer competitors. It puts the average listing at about $40,000 a year and $218 a night, with 56% occupancy. Another tracker, AirROI, shows about $30,700 a year and 38% occupancy. So the range is $30,000 to $40,000 and 38% to 56%. Underwrite the low end and let the high end be a pleasant surprise.
Now the midterm side. Norton Healthcare has more than 18,600 employees and is Louisville's second-largest employer, with five hospitals in town and roughly 1,900 licensed beds. UofL Health runs nine hospitals. Baptist Health has a big Louisville campus. Kentucky belongs to the Nurse Licensure Compact, which means a nurse with a multistate license can start working here without applying for a separate Kentucky license. The travel contracts I looked at run 13 to 14 weeks, which is a furnished place for about three months. To be fair, the demand is hospitals refilling units more than a statewide nursing shortage. That's steady, not a spike, and for a landlord steady is fine.
If the midterm side interests you, we wrote the full midterm rental guide for Louisville, plus pieces on travel nurse housing near UofL Health and Jewish Hospital and near Norton Healthcare.
The thing that trips people up isn't the taxes. It's permission. Louisville Metro has allowed short-term rentals since 2015, but each property has to be registered ($250 a year), and a home you don't live in, in most residential zones, needs a conditional use permit on top of that. Old Louisville has its own carve-out. Some of the small cities inside Jefferson County ban them outright. Condo boards and HOAs add their own rules. Stays of 30 days or longer fall outside Louisville's short-term rental ordinance entirely, which is a big part of why midterms appeal to owners who don't want the permit process. Our free Louisville short-term rental rules checker is a good first look, and our short-term rental guide walks through the permits step by step. We've spent over a decade helping investors work through zoning, permits, HOAs, and condos before they wire a dollar, and that's the part I'd hate for you to learn the expensive way.
So here's what I'd like you to do.
If you want to look at Logan Street, reply "LOGAN" and I'll send you the numbers and set up a showing.
If you want to buy more Airbnbs or midterms, or you're a doctor, a lawyer, or married to one and want to know whether any of this fits you, reply "TAX." I'll introduce you to my CPA, who can walk you through how to use these rules and what the hours and paperwork look like. He's the one who can tell you what your return would actually do. I'm the one who can help you find the property and get it permitted.
Or just hit reply and tell me what you're trying to do. Text or email works. If you'd rather talk it through, grab a time on my calendar below.
Free tools for Louisville buyers, sellers and investors, no sign-up and no email wall: the investment property analyzer, the BRRRR calculator, the Kentucky seller and buyer closing cost calculators, and a lot more on the tools page.
Know somebody who'd like this in their inbox every morning? Send them your personal link. One friend signs up and you get my daily Top Five. Three friends and you get Insider Access.
📊 Friday’s poll, where are you on the upgrade? Staying put, my rate’s too good: 36%. Not in the market: 32%. Actively looking: 19%. Would move for the right deal: 13%. So a third of you are looking or would jump for the right house, and another third are sitting on a rate you’ll never see again. Both of those can be true at once, and that’s exactly the person who should read Friday’s issue again.
Today's poll:
Which one sounds most like you?
🏆 Want today's Top Five? Every morning I pull the five best deals on the Louisville MLS — and the five most ripe for a lowball, with the number I'd offer. I can't blast other agents' listings to a list (rules are rules), but I can send them to you personally. Reply "FIVE" and they're yours.
Hey, we've got tons of resources for all of this, and every one of them is free with no sign-up. Here's the short-term rental, midterm, and tax shelf.
New this week, built for this issue:
Louisville Airbnb and midterm rental revenue calculator — put the same property through both strategies, Derby weekend included.
Cost segregation and bonus depreciation calculator — the year-one deduction, what the IRS takes back when you sell, and the Kentucky difference.
Short-term rental tax qualifier — the seven-day rule and the hours test, checked against your numbers.
Real estate professional status checker — you and your spouse, one at a time.
Short-term and midterm rental best practices for Louisville — rules of thumb from permits to paperwork.
Calculators and tools:
Louisville short-term rental rules checker — registration, conditional use permits, and the zones where they get tricky.
Capital gains and 1031 exchange estimator — what you'd owe when you sell, including the depreciation the IRS takes back.
Investment property analyzer — rent, expenses, and cash flow on any deal, Airbnb or midterm included.
DSCR loan calculator — DSCR is debt service coverage ratio, the number rental lenders check first.
BRRRR calculator — buy, rehab, rent, refinance, repeat, and how much cash comes back out.
House hacking calculator — live in one unit, rent the rest, and see what you really pay.
Rehab cost estimator — a line-by-line budget before you buy the fixer.
Jefferson County property tax calculator — the bill for any taxing district.
The full tools page — closing costs, outside tools, and more.
Short-term rental guides:
Louisville short-term rental rules, permits, and Derby-week math
The Louisville 30-day rule
Bourbon Trail Airbnb investing
Lexington short-term rental regulations
Southern Indiana short-term rental regulations
Selling an Airbnb in Kentucky
Midterm rental guides:
Midterm rentals in Louisville, the complete guide
Best neighborhoods for midterm rentals
Midterm rental vs. long-term lease: the return
Converting a rental to a midterm rental
What it costs to furnish a midterm rental
Travel nurse housing near UofL Health and Jewish Hospital
Travel nurse housing near Norton Healthcare
Tax and money guides:
How real estate investors legally pay less tax, a Kentucky guide
1031 exchanges in Kentucky
Reverse 1031 exchanges
Cost segregation on commercial buildings
Opportunity zones for Louisville investors
Buying real estate with a self-directed IRA
Buying a rental without a W-2
DSCR loans for Kentucky investors
Land trust vs. LLC in Kentucky
Having a CPA in your corner from day one
With Enthusiasm,
Rob Bergeron
Owner–Realtor at Award-Winning Winner Realty
Winner Realty: (502) 305-8915
Winner Realty | OffMarket.deals | Property Partner Data Company
Schedule time to discuss your goals, bottlenecks, or whatever’s on your mind — book me here.
PS: Want to see every furnished rental on the market right now? Here's the list.
41 short-term rentals — homes running as Airbnbs, homes with a permit, and homes zoned and sold to be one, from downtown lofts to the lake country.
5 midterm rentals — furnished buildings and units set up for stays of 30 days or longer, travel nurses included.
769 Logan Street — the Smoketown Airbnb from today's issue.
All Winner Realty listings on the MLS — ours, every price point, and we have quite a few.
Open houses this week — see every one before you make plans.
PSS: Inventory climbed over 4,700 folks briefly over the weekend. When I started in 2013 inventory was 1,800-2,200. Lots of urgency in the sellers market. Let’s send them an LOI and see if we can solve their problem!
PSSS: Great day for a great day! I have a feeling it’s going to be a great week! Let me know if I can help make it that way. Don’t be a stranger!
PSSSS: You Can See Everything was fascinating. I read Bad Blood and love Nathan Fielder’s approach to how he does things. Definitely worth a watch!