Pairing a rural EB-5 investment in Beyond Paradise 1 with a Kainani townhome you run as a short-term rental can open two doors at once: a senior secured EB-5 position with a 3% distribution, and a tax deduction that can offset a high W-2 salary. Here is how it works.
Set above Keauhou Bay in Kailua-Kona on Hawaii Island, Beyond Paradise 1 is a rural EB-5 development of 120 townhomes at Kainani Above Keauhou Bay. Each home carries short-term rental (STR) entitlements, a right held by fewer than 10% of homes in Hawaii, and one reason this project cannot be built again.
An EB-5 investment on its own does not create tax deductions. Buying a unit and operating it as a vacation rental can. Under what tax advisors call the short-term rental tax loophole, owners may deduct depreciation, upkeep, maintenance and other losses against their regular income, as long as three conditions are met:
- Guest stays average seven days or less for the year.
- You spend at least 100 hours a year managing the rental, and more than anyone else.
- The rental is run as an active business, not a passive investment.
For high-income professionals, including those in tech, finance and medicine, these deductions can meaningfully lower the overall tax bill. Here is how each piece works.
Why High Earners Rarely Get Tax Breaks From Rental Property
Most rental real estate gives high earners very little immediate tax relief. The reason is IRC Section 469, the passive activity loss (PAL) rules. Once your modified adjusted gross income (MAGI) passes $150,000, losses from a traditional long-term rental cannot offset W-2 wages or equity compensation. They simply carry forward.
Owning and running a short-term rental at Kainani Above Keauhou Bay changes that. Under Section 469, a qualifying short-term rental is not treated as a “rental activity” at all. Its losses can be non-passive, which means they can offset W-2 wages, business profits and other active income, without Real Estate Professional Status (REPS).
The result: paper losses from real estate become real deductions that can reduce what you owe.
1. IRC Section 469 and the 7-Day Rule
Normally, to deduct property losses against W-2 income, you must qualify as a real estate professional. That means logging 750+ hours a year in real estate and proving it is your primary profession. A full-time tech executive, physician or other professional cannot realistically clear that bar.
The 7-day rule is the exception. Under Treasury Regulation §1.469-1T(e)(3)(ii)(A), if a property’s average guest stay is seven days or less, it is no longer a “rental activity.” It is treated as an active trade or business, much like a hotel.
Why it matters: You do not need to be a real estate professional to unlock active deductions. Kainani sits in a premier Kona resort area with short-term rental zoning, and its listings allow stays as short as three nights. Vacation guests typically book short visits, so meeting the seven-day annual average is realistic.
To check your average, divide total nights rented by the number of separate stays. For example, 10 stays totaling 55 nights averages 5.5 days.
2. Material Participation: The 100-Hour Rule for Busy Professionals
For the losses to count as non-passive, you must materially participate in running the rental. Professionals with full-time jobs most often qualify through the 100-hour rule:
- The test: You (and your spouse, combined) spend at least 100 hours on the short-term rental during the tax year, and no other individual spends more hours than you.
- The advantage: Tech professionals and other busy executives can meet this by handling the digital side of the business. Managing the Airbnb and Vrbo dashboards, setting up dynamic pricing software, messaging guests and scheduling cleaners or contractors all count. Outsource the physical work, run the technology yourself, and 100 hours a year is very achievable.
- The catch: Cleaners, handymen and property managers count as “individuals.” If a full-service manager logs more hours than you, you fail the 100-hour test. In that case, the alternative is to spend more than 500 hours yourself.
Keep a dated log of your hours as you go. It is the first thing the IRS asks for.
3. Maximizing First-Year Savings With Cost Segregation and 100% Bonus Depreciation
Once your short-term rental qualifies as an active business, you can legally move a large share of your depreciation into year one with a cost segregation study paired with bonus depreciation.
- How it works: Short-term rental property is normally depreciated over 39 years, like commercial real estate. A cost segregation study breaks a Kainani townhome into 5-year, 7-year and 15-year components instead. These include custom cabinetry, specialty lighting, appliances, furniture, and land improvements such as the pool and pickleball amenities.
- Why 2026 is a strong year: The One Big Beautiful Bill Act (signed July 4, 2025) permanently restored 100% bonus depreciation for property acquired after January 19, 2025. Every reclassified component can be deducted in full in the first year.
- The result: Land cannot be depreciated, so the study applies to the building’s value. If about 20% of the price is land, a Plan 4 townhome priced at $1,699,500 has roughly $1.36 million of depreciable basis. Reclassifying 25% to 30% of that produces about $340,000 to $408,000 of first-year depreciation.
Two things to know: the unit must be furnished and listed for guests by December 31 to count for that year, and Hawaii’s state income tax does not allow bonus depreciation. The large first-year deduction applies to your federal return.
4. A Real-World Example for a Tech or Executive-Level Investor
Consider a married couple filing jointly with $500,000 in W-2 income, the kind of salary or stock vesting many tech and executive households see. The table uses 2026 federal tax brackets and the standard deduction.
| Financial Metric | Without a Kainani STR | With a Kainani STR |
| W-2 income | $500,000 | $500,000 |
| Kainani STR paper loss (cost segregation, IRC §469) | $0 | –$400,000 |
| Income before standard deduction | $500,000 | $100,000 |
| Estimated federal income tax | about $102,600 | about $7,600 |
| Year-one federal tax savings | $0 | about $95,000 |
A few limits apply. For 2026, federal law caps how much business loss can offset wages at $512,000 for joint filers and $256,000 for single filers. A single filer in the same situation could use $256,000 this year (saving about $88,750) and carry the rest forward. The savings are also largely a timing benefit: depreciation is generally recaptured when you sell, unless you defer it with a strategy such as a 1031 exchange.
Quick Answers
Does an EB-5 investment in Beyond Paradise 1 give me tax deductions?
No. The deductions come only from owning a Kainani unit and running it as a short-term rental yourself.
Can a vacation rental offset W-2 income?
Yes, if the average guest stay is seven days or less, you materially participate, and the loss fits under the 2026 federal cap.
Can I hire a property manager?
Yes, but their hours count against you. To use the 100-hour rule, you must still spend more time than anyone else.
Do I need to be a real estate professional?
No. The 7-day rule is what lets W-2 earners use these losses without REPS.
Talk to Us
To discuss your situation and learn more about Beyond Paradise 1 and Kainani Above Keauhou Bay, please get in touch with our team. We also recommend meeting with your tax advisor before you buy.
For informational purposes only. This is not legal, tax, or investment advice. Tax figures are estimates based on 2026 federal rules and simplified assumptions. Please consult a qualified EB-5 immigration attorney and tax specialist about your situation.