Short-Term Rental Market Update: Q1 2026

Q1 2026 in short-term rentals. 2026 was the year the tax strategy is back at full strength and market selection decides everything, and january through march has its own shape on top of that. Here is what moved, what it meant for an owner, and what the quarter was actually for.

What was happening across the market

2026 is the first full year with 100% bonus depreciation permanently restored under OBBBA. For a high earner buying a property that clears the seven-day average stay test and where they materially participate, the first-year deduction is back to where it was in 2021. What is not back to 2021 is the market: supply is deeper, regulation is tighter in the places that tightened, and buying badly is no longer covered by a rising tide.

The spread between markets is wider than at any point in this period. Arizona and Tennessee are workable and stable. California and much of Colorado are not, for reasons that have nothing to do with demand.

Buyers are underwriting to current financing costs rather than to a hoped-for future, which has made pricing more rational than it was in either the boom or the correction.

The seasonal shape of Q1

Q1 is the widest spread of the year between markets. Southwest Florida, the Arizona desert and the Gulf snowbird markets are at peak, while the Smokies, the Poconos and most lake markets are in their thinnest stretch. A portfolio that peaks together has one revenue season; a portfolio built across both shapes has two.

Reading a quarter in isolation is how owners talk themselves into bad decisions. A thin quarter in a seasonal market is not underperformance, it is the shape of the asset, and it should have been in the model at purchase.

What Q1 is actually for

Q1 is also when last year's tax position becomes final and this year's becomes changeable. The participation log either exists or it does not, and the running average period of customer use for the new year starts accumulating from January.

With 100% bonus depreciation permanent, the constraint has shifted back to the participation tests and the seven-day average, which are operational rather than legislative and therefore inside the owner's control.

The Q1 checklist

1. Compute last year's average period of customer use from booking-level data before filing, rather than estimating it.
2. Total participation hours by person and by property, including managers and cleaners, because two of the seven tests depend on that comparison.
3. Start this year's log in January rather than reconstructing it in December.
4. Book preventive maintenance for the spring: HVAC service before summer, and pool or hot tub servicing before the season turns.
5. Review pricing for the coming peak against the comparable set as it stands now, not as it stood when you bought.

The risk carried into Q1 2026

The risk in 2026 is the same one that has been true throughout: buying on the tax benefit rather than on the property. A permanent 100% deduction makes a good purchase excellent and does not make a bad purchase acceptable.

2026 rewards market selection and basis. The tax side is as favourable as it has ever been, which means the differentiator is everything else.

The consistent thread across every quarter on this site is that the environment changes and the discipline does not. Twelve individual monthly revenue figures, a complete expense stack including reserves, and a stress test at 75% of projection that still covers debt service.

What to carry into the next quarter

January through March is one quarter of a business that is measured annually. The number that matters is not what this quarter produced but whether the year is tracking to the model, and whether the reserve is intact.

If the year is behind the model, the useful question is which input was wrong: revenue, cost, or the assumption about the market. Each has a different fix, and discounting is the right answer to only one of them.

If the year is ahead, the useful question is whether that is the property or the market. A property outperforming a flat market is a property to buy more of. A property matching a rising market has told you nothing yet.

Frequently asked questions