Joshua Tree's Luxury Market Is Attracting Tax-Motivated Buyers, Not Just Lifestyle Ones

Written by:

Eden Godinez

Date:

23 Jul 2026

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In California’s High Desert, a new class of buyer is entering the luxury real estate market with a primary goal that has little to do with rental income or appreciation. According to Hargo Khalsa, Realtor & Developer at Joshua Tree Modern, a growing number of high-income purchasers are approaching him specifically to access accelerated depreciation schedules on investment properties, using real estate to offset significant gains from other sources in a single tax year.

A Tax-Driven Buyer Profile

The buyers Khalsa describes are not primarily motivated by short-term rental income projections or long-term appreciation. They are high earners – entrepreneurs, tech executives, investors, who have realized substantial gains and are looking for a legal mechanism to reduce their taxable income before year-end.

“I’m getting a lot of buyers coming to me just for that reason,” Khalsa says, “and typically on the luxury side of the market because the tax breaks make more sense that way.”

The strategy centers on bonus depreciation provisions that allow qualifying real estate investors to deduct a significant percentage of a property’s depreciable value in the year of purchase, rather than spreading that deduction across the standard 27.5-year residential depreciation schedule. When combined with a cost segregation study – which reclassifies components of a property into shorter depreciation categories – the first-year deduction on a luxury short-term rental can be large enough to offset a meaningful portion of unrelated income.

“There’s so much opportunity there with that potentially for people who are looking to offset some really good gains in a tax year,” Khalsa says.

Luxury Properties in Secondary Markets Fit

The mechanics of bonus depreciation favor higher-value properties, which is one reason Khalsa sees this strategy concentrating at the luxury end of the Joshua Tree market. A larger purchase price means a larger depreciable base, which translates to a larger potential deduction.

Short-term rental properties carry an additional advantage. Under current IRS rules, a property that qualifies as a short-term rental, where the average guest stay is seven days or fewer, may allow the owner to treat rental losses as non-passive, meaning those losses can offset ordinary income rather than being limited to passive income sources. This distinction makes leisure-market properties like those in Joshua Tree structurally more useful for this strategy than long-term rentals.

For buyers and sellers in the High Desert, this means the luxury segment may hold steadier than the broader market even as mid-tier short-term rental properties continue to correct. Tax-motivated buyers underwrite based on depreciation value rather than projected nightly rates, a different calculus than what drove the 2020–2022 boom.

Tax Strategy Into Liability

Khalsa notes that the strategy is not self-executing. The depreciation schedules, material participation requirements, and income thresholds involved are complex, and errors can produce outcomes worse than doing nothing.

“You can buy real estate, if you approach it the right way, of course, with a good CPA, and you can take some major deductions, taking advantage of that hundred percent depreciation schedule that’s available currently,” Khalsa says. “But it has to be done right, and there are pitfalls and ways people can really get it wrong.”

The most common failure points involve the material participation test, which requires the investor to spend a qualifying number of hours actively managing the property, and the passive activity loss rules, which can trap deductions in a passive loss carryforward if the investor does not meet the relevant thresholds. Buyers who purchase a property expecting immediate tax relief without satisfying these requirements may find that their anticipated deductions are deferred or disallowed entirely.

There is also the question of depreciation recapture. When a property purchased under a bonus depreciation strategy is eventually sold, the IRS recaptures the accelerated depreciation at ordinary income rates rather than capital gains rates. This tax event can significantly reduce the net benefit if not planned for in advance.

How Khalsa Positions Around This Trend

Khalsa describes his role as a connector and property-side advisor rather than a tax professional. He is developing a video series on the topic and works with CPAs who specialize in real estate depreciation strategies.

“I’m not a CPA, but I do know CPAs who are very good at this, and obviously I’m aware of the right kinds of assets to be looking for,” Khalsa says.

In practice, that means helping tax-motivated buyers identify properties that satisfy both the experiential quality standards required for short-term rental success and the structural characteristics – personal property components, land-to-improvement ratios, amenity packages – that maximize the benefit of a cost segregation study. Khalsa says the luxury properties that book well as short-term rentals in Pioneertown and Joshua Tree tend to overlap with the properties that produce the strongest depreciation outcomes – experiential, well-appointed homes on larger parcels with significant improvements relative to land value.

For investors evaluating the High Desert, the practical takeaway is that bonus depreciation percentages under current federal law are scheduled to phase down in coming years. Buyers acting under this strategy face a narrowing window. That time pressure may sustain demand at the luxury end of this market even as mid-range inventory continues to sit.

About the Expert: Hargo Khalsa is a Realtor and Developer with Joshua Tree Modern, serving the high desert communities of Joshua Tree, Yucca Valley, Twentynine Palms, and Pioneertown in California’s San Bernardino County since 2018.

This article is intended for informational purposes only and does not constitute legal, financial, or investment advice. The views and opinions expressed herein reflect those of the individuals quoted and do not represent an endorsement of any company, product, or service mentioned. Readers should conduct their own due diligence and consult qualified professionals before making any investment decisions.