A $400,000 Asset. A $400,000 Deduction. Year One.

The FLOHOM Tax Advantage · Part 1: For the Individual Investor

A plain-English summary of the FLOHOM Tax White Paper (2026 Edition), prepared by Hall CPA PLLC, written for individual investors weighing a floating asset. Part 1 of a three-part series.

If you're a high earner, you already know the problem. The income shows up faster than the deductions. You write the checks in your top bracket and wait years for real estate to give the benefit back.

A FLOHOM flips that. And the reason is a single line in the tax code.

Why a FLOHOM is taxed unlike anything else you own

Most assets are depreciated slowly over a set "class life" assigned by the IRS. It's a deduction under §168 for normal wear and tear. Residential buildings run 27.5 years; commercial, 39. The number matters more than it looks, because of one rule: bonus depreciation only applies to assets with a class life of 20 years or less. A building never qualifies.

A FLOHOM does. The tax code doesn't see the asset as a building. It sees a vessel. Under Revenue Procedure 87-56, Class 00.28, a FLOHOM carries a 10-year class life, the same category as yachts and barges. It's §1245 personal property, not real property.

This isn't a loophole. It's the plain reading of the rule. Treasury Regulation §1.856-10 tests "real property" by permanence, weighing five factors: how the asset is attached, whether it's meant to stay indefinitely, the damage removal would cause, whether the arrangement (like a lease) suggests it isn't indefinite, and the time and expense to move it. A FLOHOM fails all five. A mooring line isn't permanent. Moving it does no damage and costs little. A dock-slip lease isn't indefinite. So it can't be real property. It's a vessel.

The OBBBA made the timing permanent

On July 4, 2025, the One Big Beautiful Bill Act (Public Law 119-21) permanently restored 100% first-year bonus depreciation under §168(k) for qualified property acquired and placed in service after January 19, 2025. The old phasedown, which stepped from 80% to 60% to 40% on its way to zero, is gone. The IRS reaffirmed the framework in Notice 2026-11 (January 2026).

So run the math on a $400,000 FLOHOM:

• Year-1 deduction under OBBBA:$400,000
• Year-1 deduction under the old 40% rate:$160,000

The full purchase price, deductible in the first year you place it in service. For a high earner, that's not a rounding error. It's a strategy.

But the size of the deduction is only half the story. What it can offset is the other half, and that comes down to one decision.

Active vs. passive: the variable that decides everything

Since 1986, the tax code (§469) has split activities into two buckets. If you materially participate, the activity is active, and its losses can offset any income, including your W-2. If you don't, the losses are passive and can only offset passive income, with the rest carried forward until you have passive income or sell at a gain.

(A quick myth-buster: you may have heard of a $25,000 passive-loss allowance against ordinary income. That's for rental real estate. A FLOHOM is personal property, so that specific allowance generally doesn't apply. Don't plan around it.)

Two scenarios from the tax white paper show what's at stake for an individual investor.

Sarah, the high-earning W-2 professional.A physician earning $450,000. She invests $300,000 and meets the 500-hour material participation test by co-hosting, vendor coordination, and the listing setup and management. Her loss is active, offsetting her wages dollar for dollar. Taxable income drops from $450,000 to $150,000, roughly $ 105,000in first-year federal tax savings.

Mark & Lisa, the dual-income household.Combined W-2 income of $600,000. They invest $350,000. The planning move: only Lisa needs to clear 500 hours, because a spouse's participation counts as the taxpayer's under Reg. §1.469-5T(f)(3), even if they don't own the asset. Lisa logs about 12 hours a week; the activity is active, and the $350,000 deduction drops taxable income to $250,000, roughly $115,000 saved.

If you already have passive income, say, from a rental portfolio, there's a third path: stay passive and let the FLOHOM's depreciation absorb that income tax-free for years, while the rest carries forward. Either way, participation is the lever.

What "material participation" actually requires

There are seven tests in the regulations (Reg. §1.469-5T(a)). Three matter most:

• Substantially all. Your participation is essentially all the participation in the activity.
• The 100-hour test.More than 100 hours, and more than any other single individual (cleaners, handymen, FLOHOM staff, counted per person).
• The 500-hour test.More than 500 hours, period, regardless of what anyone else does.

There's also a door worth knowing. Under Reg. §1.469-1T(e)(3)(ii), if the average guest stay is 7 days or less, which describes most nightly FLOHOM rentals, the activity isn't a "rental" that's automatically passive. That opens active treatment if you participate. (It's a math test, so it needs at least one real booking to compute.)

"But FLOHOM runs the unit, can I still qualify?"

Fair question, and the most common one. Our ready-to-rent model is turnkey by design: FLOHOM handles turnover, guests, and maintenance coordination. That doesn't lock you out. It means you carve out a defined ownership and management role.

The 500-hour test is the most reliable path, because it doesn't compare you to anyone else. The 100-hour test often works too: no single person on a service team usually logs more than 100 hours on one specific unit in a year.

Is 500 hours realistic?

For an actively involved owner, yes. The paper's planning estimates:

• One-time setup: about 43-68 hours.Lender conversations, loan docs, building the guidebook, creating listings, hiring cleaners and a photographer, choosing finishes, setting up the entity.
• Ongoing: about 3 to 6 hours a week, or 150 to 300 hours a year.Adjusting pricing against comps, communicating with guests, coordinating vendors.
• Property setup days. Furnishing and outfitting can run a half to a full day at a time.

Stack setup on ongoing work and the 100-hour test is comfortable; 500 is attainable for an owner who's genuinely involved. The non-negotiable is documentation: keep a contemporaneous log (date, activity, hours) entered weekly, not reconstructed in April. In an audit, the burden of proof is on you.

"Can I stay on it myself?"

Yes, but mind the line. Under §280A, if your personal use exceeds the greater of 14 days or 10% of the days it's rented, your deductions get capped at the rent you collected. Stay under that threshold, and you preserve the loss (with a small proration for personal days). Family use counts as personal use, even at full rent. The impact is biggest in year one, when bonus depreciation is in play, so plan your own stays carefully that first season.

Reporting, and the catch at sale

A FLOHOM is personal property, so its income goes on Schedule C, not the Schedule E you'd use for a rental. If you're passive, losses flow through Form 8582 and are carried forward. Schedule C also raises self-employment tax exposure on future profits if you're continuously engaged. The same participation that unlocks the deduction can expose later profits to SE tax, so it's navigated deliberately. And because a FLOHOM isn't real property, it'snot eligible for a 1031 exchange(though selling and rebuying in the same tax year allows the new unit's bonus depreciation to absorb much of the gain).

The catch most people skip: recapture. Depreciation isn't forgiven; it's deferred. When you sell, it is treated as ordinary income at your marginal tax rate (up to 37%) under §1245(a)(1). Buy for $400,000, take $300,000 in depreciation, sell for $650,000. That's $250,000 in long-term capital gains (taxed at 0, 15, or 20%) and $300,000 recaptured as ordinary income, with a possible 3.8% net investment income tax on top. The upfront deduction is still powerful, best taken in your highest-earning years and recaptured later, potentially in a lower bracket. But it's a timing play, not free money.

There is a way to soften the hit. A FLOHOM can't be rolled into a 1031 exchange, so the recapture tax isn't deferred. But if you buy another FLOHOM in the same tax year you sell, the replacement unit's fresh 100% bonus depreciation can offset much or all of the gain, including the recaptured ordinary income. You don't defer the tax the way 1031 would; you absorb it with a new deduction. The one condition that matters is timing: both the sale and the purchase must fall within the same tax year.

The bottom line for investors

A FLOHOM offers a tax profile almost nothing else does: a 10-year vessel, 100% deductible in year one, now permanent under the OBBBA. Whether it puts six figures back in your pocket comes down to how you participate, how you document, and how you plan the exit.

That's the conversation worth having before you commit.

Ready to run your own numbers with our team? Start Your FLO →https://flohom.com/flownership

Next in the series: Part 2, for marina owners, where one election changes everything.

Prepared from the FLOHOM Tax White Paper (2026 Edition), authored by Hall CPA PLLC. Scenarios are illustrative, and figures assume material participation is met and documented. This is general education, not tax advice. Talk to your tax advisor before you commit to a strategy.