It's Not What You Make

In November 2025, the U.S. Mint struck its last circulating penny. Each one cost close to four cents to make, and inflation had quietly turned Benjamin Franklin's favorite unit of thrift into a money-loser.

Franklin's actual line in Poor Richard's Almanack wasn't quite "a penny saved is a penny earned." It was closer to "a penny saved is two pence clear." He understood that an earned penny gets taxed and spent before it reaches your pocket, while a saved penny is already yours.

In other words, it's not what you make. It's what you keep.

I've been a Richard writing about money for a long time, so allow me a little Poor Richard of my own. There's a growing argument that for some people, the path to financial freedom isn't a longer version of the path to financial stability. It's a different vehicle entirely, and the vehicle most often named is the short-term rental (STR).

I think that's right, for the right person. Here's how to tell whether you're that person.

Why the Numbers Can Be Remarkable

Take a $400,000 property bought with $100,000 of cash. A well-run first year might look like this:

• Cash flow: $8,000 to $12,000
• Principal paydown: $4,000 to $5,000
• Appreciation at 3%: about $12,000
• Tax savings: $30,000 to $45,000

Put together, that's a year-one return that can reach 55% to 75% on the cash invested. The biggest single piece isn't rent. It's what the owner keeps.

That tax piece comes from a cost segregation study, which reclassifies part of the building into short-lived components. Combined with 100% bonus depreciation, which federal law restored in 2025, it can produce $80,000 to $100,000 of deductions in year one. For owners who qualify, those deductions offset ordinary wages, including W-2 income.

That's Franklin's principle in modern form: two pence clear.

Where It Makes Sense

1. You're in a high tax bracket

A deduction is worth your marginal rate. At the 37% federal bracket, $100,000 of depreciation saves about $37,000. At 22%, it saves $22,000.

The sweet spot is roughly $400,000 or more of household taxable income for married couples, or about $200,000 or more for single filers. Below that, a short-term rental can still be a solid investment, but it has to earn its keep on operating returns rather than tax savings.

2. You qualify for the STR loophole

Normally, rental losses are passive and can't offset wages. Short-term rentals can be different if two things are true:

• Your average guest stay is seven days or less.
• You materially participate under Internal Revenue Code (IRC) Section 469. That usually means at least 100 hours a year and more than any other individual, or 500 hours outright.

Your hours need contemporaneous records that will hold up if the Internal Revenue Service (IRS) asks. I walk through how the passive-loss rules work, and how an actively run short-term rental gets around them, in The Rental Loss You Can't Use — and the One You Can. For what defensible records actually look like, see The §469 Problem, a six-part series on the EvidenceGraph blog.

3. You're willing to be the decision-maker

The tax benefit depends on your involvement, but not necessarily on your labor. The 100-hour test compares you to each individual, not to a management company as a whole. An owner with a cleaner, a co-host or a full-service manager can still qualify, if everyone's hours are tracked. The 100-Hour Test Compares People, Not Companies explains why, and You Bought It Remote. Can You Still Win the Hours? covers owners who don't live near the property.

Think of the first year as running a small business. You don't have to scrub the bathrooms, but you do have to run it and prove that you did.

To see where you land on the ladder from long-term rental to active short-term rental, start with Where Do You Fit? The Real Estate Investor's Ladder.

4. The property and the market support it

The tax math only works if the property does. That means a location with durable guest demand, a purchase price the numbers support without the tax benefit, and local rules that allow short-term rentals now and are likely to keep allowing them. Ordinances change, and a rental you can't legally operate is just an expensive second home.

Local rules move fast. Ventura, for example, overhauled its short-term rental permit renewals this year. See Ventura Short-Term Rental Permits.

5. You understand your state

California residents should know that the state does not follow federal bonus depreciation. The federal savings are real, but your state return won't see the same first-year windfall. The Deduction California Won't Give You — Yet runs the two-return math.

Keep the First Penny First

None of this replaces the basics. If your employer matches 401(k) retirement contributions, take every dollar of that match first. It's often an immediate 50% to 100% return, and it's the purest "penny saved" there is.

The short-term rental is the second vehicle, one that lets a high earner keep dollars that would otherwise go to taxes, and then build cash flow they don't have to wait until 65 to touch.

Plan Past Year One

Bonus depreciation is a one-time event. After year one, a well-bought property might return something like 15% to 25% on equity, and that percentage naturally declines as your equity grows. When you sell, some of the depreciation is recaptured and taxed, so plan the exit as carefully as the entry.

Poor Richard's Verdict

The penny is gone, but Franklin's point survives: it's not what you make, it's what you keep.

If you're a high earner willing to be the decision-maker on a property that makes sense on its own, a short-term rental can help you keep far more of what you make. If that isn't you yet, the old advice still works. Take the match, save the pennies, and let them compound.

Sounds Like a Way to Secure Your Family's Future?

Start with your certified public accountant (CPA). Whether this strategy works for you turns on your bracket, your other income and your state, and that's their call to make, not mine.

If your CPA says the numbers work, then talk to me. After nearly 50 years in California real estate, I've built relationships with the people who make this strategy function in practice, in Ventura County and in short-term rental markets across the country: operators, cost segregation specialists, lenders and property managers who track hours the way the rules require. Wherever you're thinking of buying, I'll help you get connected with the right ones.

Schedule a Property Strategy Session when you're ready.