New tax bill could make Airbnb hosts richer and tenants poorer

Congress has introduced a tax relief bill that could counterintuitively make your rent more expensive.

Titled the Tax Relief for American Families and Workers Act, the bill seeks to minimize property owner taxes through what's known as a 100% bonus depreciation.

It’s a tax incentive that gives business and property owners an opportunity to write off assets like equipment or properties in a single year instead of multiple years, potentially saving them a bundle on taxes in that period.

While depreciation typically allows property costs for qualifying assets to be recouped over the lifetime of that asset, bonus depreciation shortens the timetable.

Chief among the beneficiaries of this legislation are the property owners of short-term rentals who could rake in tens of thousands of dollars in tax savings.

On the short end of the stick, however, are long-term tenants as real esttae "Airbnb-ing" could further drive up rental prices, making housing even less attainable for ordinary Americans.

Tax relief mechanics

The tax bill passed the House earlier this year by a vote of 357 to 70, potentially stalling a planned decline in depreciation bonuses.

In 2022, bonus depreciation was a full 100% for qualifying assets that were placed into service that year, but the percentage dropped to 80% last year.

If passed, the new bill would increase bonus depreciation back up to 100% through 2025 and include a retroactive tax perk for last year.

Perhaps not surprisingly, the Tax Relief for American Families and Workers Act garnered overwhelming support from industry insiders, including Carl Harris, the chairman of the National Association of Homebuilders.

“[The] House voted overwhelmingly to approve this critical bill last month because Republican and Democratic lawmakers recognize it contains a number of provisions to help families, assist small businesses, and promote the production of attainable, affordable housing,” he said.

The Senate should “put petty politics aside and do what’s right for the nation by passing this bill now,” Harris continued.

Moving the "goalpost" on the American Dream

Tax relief that benefits the wealthy has been an economic strategy for decades.

The general idea is that since the wealthy typically own businesses, tax relief would trickle down to ordinary Americans via more job opportunities. But history suggests reality is much crueler.

For example, a study performed by a pair of economists from the London School of Economics and King’s College London followed the trail of tax cuts over a 50-year span leading up to 2015 in more than a dozen developed countries, including the U.S.

The results showed tax cuts for the rich over the years have only helped them attain more wealth while simultaneously widening the gap of income inequality.

“Based on our research, we would argue that the economic rationale for keeping taxes on the rich low is weak,” said Julian Limberg, a co-author of the study.

“In fact, if we look back into history, the period with the highest taxes on the rich—the postwar period—was also a period with high economic growth and low unemployment.”

Meanwhile, the tax burden of middle-class Americans continues to grow.

For example, a family of five earning an annual salary of at least $42,000 can expect to pay nearly $1,000 more in inflation-adjusted income taxes in 2024 compared with six years ago.