Free tool — no sign-up required
Short-term rental tax analyzer
Most short-term rental owners assume they have a passive rental property. Many don’t. If your average stay is 7 days or fewer, your STR isn’t a “rental activity” under the tax code — and that changes everything about how your losses work.
Educational estimate — not tax advice. Passive activity determinations are fact-specific. Confirm with your CPA.
The three tests that determine your STR tax treatment
Most owners only know about the passive loss rules. The vacation home test and the 7-day rule both come first.
Vacation home test
If you personally use the property more than 14 days per year (or more than 10% of rental days, if higher), vacation home rules apply. You cannot deduct rental losses regardless of your average stay or participation. This test comes first — if you fail it, the other two don't matter.
Personal use > 14 days or 10% of rental days
7-day average stay test
If your average rental period is 7 days or fewer, your property is not a "rental activity" under IRC 469(c)(2). It's treated like a business for passive activity purposes. This opens the door to non-passive treatment — but only if you also pass the third test.
Average stay ≤ 7 days
Material participation
If the 7-day rule applies, your losses are non-passive only if you materially participate in the activity. The primary threshold is 500 hours per year. The 100-hour test (more than anyone else, including your property manager) is a secondary path. Without material participation, losses are still passive — just under business passive rules instead of rental rules.
≥500 hours/year (or 100+ hours if more than anyone else)
Why non-passive matters so much
Passive STR (typical filing)
- ✗Losses cannot offset W-2 income or business income
- ✗Losses suspended until passive income or property sale
- ✗$25k allowance phases out above $100k AGI (gone at $150k)
- ✗Depreciation benefits locked up for years
Non-passive STR (7-day rule + material participation)
- ✓Losses offset W-2, business income, investment income — anything
- ✓No AGI phase-out or dollar cap on loss deductions
- ✓Depreciation (including cost segregation) creates immediate tax savings
- ✓Losses usable in the year incurred — not held in suspense
Read next
Short-Term Rental Tax Rules: The 7-Day Rule, Passive vs. Non-Passive, and the Vacation Home Trap
If your Airbnb averages 7 days or fewer per stay, it's not a rental property under the tax code — it's a business. That changes whether your losses can offset your ordinary income.
Real estate taxPassive Activity Loss Rules: Why Rental Losses Get Stuck
Rental losses are passive by default — they can only offset passive income, not your W-2 or business income. Here's how the $25k allowance works, when it phases out, and the three exceptions.
Tax deductionsThe Home Office Deduction: Who Qualifies, How to Calculate It, and Which Method Saves More
Self-employed business owners can deduct the business-use portion of their home — but only if it meets the exclusive-use test. Simplified vs actual method, S-corp Accountable Plan, and what the IRS looks for.