Does the short-term rental loophole work for a Hot Springs lake house?

It can. Weekend stays help with the seven-day average, while week-long stays sit right on the line. Longer summer or holiday bookings are the risk, as are lake-service companies or caretakers whose hours exceed the owner's for material participation.

Does Arkansas allow bonus depreciation on a cost segregation study?

No. Arkansas does not allow bonus depreciation and follows older, lower Section 179 limits, so reclassified components are depreciated over their regular lives on the Arkansas return.

Where can I find Hot Springs STR rules and lodging taxes?

HostReady publishes Hot Springs rules with every rule linked to its government source and checks any address for free. Much of the lake area is unincorporated Garland County, so check the parcel, not the mailing address.

Are docks and boat lifts depreciable on a rental?

Docks, lifts and similar site improvements on a rental are depreciable, and a cost segregation study may classify them as shorter-lived land improvements rather than part of the building. Keep receipts and photos so the study can support the classification.

Hot Springs STR Tax Guide: The Loophole, Cost Seg and Records

Hot Springs combines a historic downtown and national park with some of the most popular lake-house country in the South. Prices are low relative to the rental demand, which is why investors from Dallas, Little Rock and Memphis buy here to run the short-term rental loophole with a cost segregation study.

This guide covers the tax side of that strategy. It does not publish the city and county rules, lodging taxes or registration requirements, because those depend on exactly where the property sits and they change. HostReady publishes them for the address, each linked to its government source.

Local rules

Is your property inside the City of Hot Springs, or out on Lake Hamilton, Lake Ouachita or in Hot Springs Village?

Much of what people call Hot Springs is unincorporated Garland County, and Hot Springs Village is its own community with its own rules. The lake house with a Hot Springs mailing address may not be governed by the city at all.

HostReady answers that for any US address, free and without an account. It works out which government actually binds the parcel, then shows the licensing, permit, zoning and lodging-tax obligations that apply, with every rule linked to the government page it came from, and it tells you when a rule that binds your property changes.

See Hot Springs rules on HostReady Check a specific address →

Does the STR loophole work in Hot Springs?

The strategy most buyers in Hot Springs are running rests on one number first: the average length of a guest stay. When the average period of customer use is seven days or less, the property is not a "rental activity" under the passive activity rules, so if you also materially participate, its losses can offset your wages and other active income (how the STR loophole works). Above seven days, the only way out of rental-activity treatment is an average of 30 days or less combined with significant personal services, which ordinary hosting rarely provides.

Lake houses fill up with weekend groups and summer week-long family trips. Weekends pull the average down. Full weeks sit right on the line, and nothing in the regulations settles whether a seven-night stay counts as seven days or eight, so do not build a plan that depends on it. The pattern to watch is the extended summer or holiday booking that runs ten days or two weeks. Two or three of those in a season can move the whole year.

The second half is material participation. Most hosts rely on one of two tests: more than 100 hours in the year and not less than any other individual, or 500 hours on their own. The comparison in the 100-hour test is person by person, so a cleaner, handyman or manager who puts in more hours than you do on that property defeats it (the 100-hour test explained).

Lake properties come with more work than most rentals: docks, boats, lawns and the extra cleaning that follows a houseful of swimmers. If a lake-service company or caretaker handles that, their hours can exceed yours even if you manage bookings yourself. Keep a log of your time and a reasonable estimate of theirs (tracking contractor hours).

Cost segregation and bonus depreciation in Arkansas

The reason the loophole is worth pursuing is depreciation. A cost segregation study separates the furniture, fixtures, appliances and site work in a property from the building shell, and those shorter-lived components qualify for bonus depreciation. Under the One Big Beautiful Bill Act, 100% bonus depreciation is back for qualifying property acquired after January 19, 2025, so a large part of that reclassified basis can come off in the first year (what changed). The building itself is still depreciated over 27.5 or 39 years.

Arkansas does not allow bonus depreciation, and its Section 179 limits follow an older version of the federal code, well below today's federal figures. On an Arkansas return the components a study reclassifies are depreciated over their regular lives instead of in year one. The federal benefit is unchanged; the Arkansas benefit is spread out. Owners who live out of state file an Arkansas nonresident return for income from an Arkansas property.

Where you live matters too. Your home state generally taxes you on rental income wherever the property is, under its own depreciation rules, and credits some or all of the tax you pay to the state where the property sits (multi-state rental income).

Lake properties tend to carry more short-lived components than a typical house: docks, boat lifts, retaining walls, outdoor kitchens and furnishings built for large groups. That is favorable for a study, and it is also exactly the detail a study needs receipts and photos to support.

Hot Springs costs worth recording

Dock and boat-lift maintenance, and any watercraft provided to guests, depreciated if they last more than a year.
Lawn, shoreline and landscape care.
Humidity management: dehumidifiers, HVAC servicing and mold prevention.
Pest control, which is heavier near the water.
Guest supplies for large groups, from linens to life jackets.

Permit, license and lodging-tax paperwork

Every obligation HostReady lists for Hot Springs comes with a paper trail, and some of it belongs in your tax records. License, permit, registration and inspection fees you pay to run the rental are ordinary business expenses. They are also the easiest deductions to lose, because they are paid once a year, in a government portal, often on a personal card.

City and county properties can face different registrations and different taxes. HostReady keeps the obligations for your parcel and the renewal dates; DeductFlow keeps what each one cost you.

Lodging taxes are different. When a platform collects and remits them, they never pass through your hands. When you collect them yourself on direct bookings, that money is the guest's tax on its way to the government, so keep it separate from your rental income in your records and let your CPA decide how it appears on the return.

What to keep for a Hot Springs rental

None of this is decided by where the property is. It is decided by what you can show. For a Hot Springs property, that means:

Every booking with its dates, so the average stay can be calculated rather than asserted.
Your hours, logged as you work them, with the date, the task and the property, and a reasonable estimate of anyone else's hours on the same property.
Every trip to the property with its purpose, because a drive to fix a hot tub and a weekend away look the same on a credit card statement.
Receipts attached to the expense they support, including the license and permit fees above.
Receipts and photos for docks, lifts and outdoor improvements, which a cost segregation study will want to see.

DeductFlow keeps all of it together, property by property, so your CPA sees the records behind the strategy instead of a summary of it.

Disclaimer: DeductFlow is a record-keeping tool, not tax advice. Consult a qualified CPA or tax professional before making tax-related decisions.

Disclosure: HostReady links on this page are referral links, and HostReady shares revenue with DeductFlow when a referral becomes a customer. HostReady is a separate company.

Hot Springs STR Tax Guide for Airbnb Owners