Short-Term Rental Tax Benefits for Washington Investors

Section 469 of the tax code makes rental losses passive, usable only against passive income (with a modest allowance that phases out at higher incomes). Treas. Reg. §1.469-1T(e)(3)(ii) carves out two cases where an activity involving real property is not a rental activity: (A) the average period of customer use is seven days or less, or (B) the average period is 30 days or less and significant personal services are provided. A typical Airbnb in Leavenworth or Ocean Shores, with weekend and three-to-five-night stays, sits in case (A) without any special effort.

The average is computed per property, per year, weighting each stay. A cabin that books eleven weekend stays and one 40-night winter tenant can blow the average. So can a manager who fills the shoulder season with monthly stays, or an HOA that imposes a 30-night minimum. If the property fails the seven-day test, its income and losses are ordinary rental activity, passive by default, and the year-one depreciation simply carries forward until you have passive income or sell.

A residential rental building is depreciated over 27.5 years, which produces a modest annual deduction. A cost-segregation study identifies the components of the purchase that are not "building": appliances, furniture, carpet and flooring, cabinetry, window treatments, decorative fixtures, and land improvements such as driveways, decks, fencing and landscaping. Those fall into 5-, 7- and 15-year property classes.

Property with a recovery period of 20 years or less is eligible for bonus depreciation under §168(k). The One Big Beautiful Bill Act, Public Law 119-21 signed July 4, 2025, amended §168(k)(1)(A) to allow 100% of the adjusted basis of qualified property acquired after January 19, 2025, permanently. In practice, a furnished vacation rental can see a meaningful share of the purchase price, plus every dollar of new furnishings, deducted in the year placed in service. Combined with the two tests above, that deduction lands against ordinary income.

Two cautions. Land is never depreciable, and in lakefront and view markets land can be a large share of the price; the study allocates it. And every dollar of depreciation is recaptured when you sell, taxed at up to 25% for the building portion and as ordinary income for the personal-property portion, unless you exchange under §1031. The seller-side math is on the capital gains page.

Washington has no personal income tax, so the federal treatment above is the whole story on your operating results. The state's capital gains excise tax under RCW 82.87, 7% with an additional 2.9% on gains over $1,000,000 starting tax year 2025, expressly excludes real estate transferred by deed or other recorded instrument (RCW 82.87.050). Selling the cabin does not trigger it.

What Washington does tax is the stay. Every rental of fewer than 30 consecutive days is a retail sale: state and local retail sales tax, the special hotel-motel tax where a jurisdiction imposes one, and in King County the convention and trade center tax. The DOR's online marketplaces guidance confirms Airbnb collects and remits state and local retail sales tax, special hotel-motel taxes and convention center taxes on hosts' behalf, but hosts may still need to register with the Department, report gross income on an excise tax return, claim the "gross sales collected by facilitator" deduction, and pay retailing business and occupation tax after the small-business credit. Direct bookings you take outside a platform are entirely your responsibility. The real estate excise tax paid when you buy or sell is separate and covered on the cost-to-sell page.