STR tax loophole: see if your Airbnb can lower your W-2 tax bill

If guests stay 7 days or less on average and you work (answer messages, manage contractors, etc.) 100+ hours on your rental, your rental's depreciation could offset your salary. Find out if you qualify in 2 minutes.

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Toggle Yes or No on each rule to see where your rental stands right now.

1
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Treas. Reg. § 1.469-1T(e)(3)(ii)(A): An activity is not a rental activity if the average period of customer use for the year is 7.0 days or less.

Short stays. Your average guest stays 7 days or less.

2
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Temp. Reg. § 1.469-5T(a)(1), (a)(3), & (f)(3): You and your spouse combined participate >500 hours (Test 1), or >100 hours and not less than any other individual (Test 3).

You do the work. You and your spouse spend 100+ hours a year on it, and more than your cleaner or anyone else. (Or 500+ hours, no matter who else helps.)

3
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IRC § 469 & IRC § 461(l): Non-passive rental losses offset W-2 wages and active business income up to the annual Excess Business Loss cap.

Income to offset. You or your spouse earn W-2 wages or business income this year.

You may qualify. Take the 2-minute quiz to confirm. Check if I qualify →
What it's worth

One example, real math

$600,000 purchase · 20% land · placed in service April 2026 · Married Filing Jointly · $350,000 household income.

Year-1 deduction (mid case) $139,274
Federal tax saved (mid case) $28,368
Range (low–high) $23,014 to $33,512
Standard (slow) — 27.5-year schedule only$12,365 Year-1 deduction
Accelerated (fast) — with cost segregation & 100% bonus$139,274 Year-1 deduction
Run your own numbers →
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Computed live from IRS Pub. 946 Table A-6 (2.576% April mid-month factor), IRS Pub. 5653 (20%/25%/30% short-life range), and IRC § 168(k) 100% bonus depreciation.

This content is not tax or financial advice for you. Please talk with a CPA to find what's right for your situation.

How it works in 3 steps

1

1. Check you qualify (quiz, 2 minutes).

Confirm that guests stay 7 days or less on average, your personal use is within 14 days, and you have a clear path to your hands-on hours.

Check if I qualify
2

2. Get a cost segregation study — it moves 20–30% of the building into 5- and 15-year parts you can write off in year 1.

Illustration of a short-term rental split into 5-year furnishings and equipment, 15-year site improvements, and the 27.5-year building structure 5-YEARFurnishings 27.5-YRStructure 5-YEARAppliances, cabinets, dedicated wiring 15-YEARDeck, hot tub pad, landscaping ≤7DAYS AVG
5-year property15-year site improvements27.5-year residential structure
3

3. Log your hours all year so the deduction holds up.

Record your owner, spouse, and cleaner hours with time-stamped entries all year, then hand the packet to your CPA at filing time.

Open the hours log
Ongoing compliance

What you must keep doing

Three things to keep the deduction:

  • Run it as a real short-term rental. Average guest stay of 7 days or less.
    Show the rule
    Treas. Reg. § 1.469-1T(e)(3)(ii)(A)
  • Be hands-on. You need to do 100+ hours a year, and more than anyone else helping. A cleaner or manager who works more hours than you can break this.
    Show the rule
    Temp. Reg. § 1.469-5T(a)(3) & (f)(4)
  • Keep records. A simple time log, your closing statement, and the depreciation study. If the IRS asks, this is your proof.
    Show the rule
    Temp. Reg. § 1.469-5T(f)(4); IRC § 280A(d)(1)
Furnished open-plan living room and kitchen in a short-term rental
Dec 31Annual stay average and participation hours are tested over the full tax year
Before you rely on the numbers

The catch, in plain English

  • You pay some back when you sell. That's depreciation recapture.
    Show the rule
    IRC §§ 1245, 1250, & 1031
  • Records matter. No log, no deduction if the IRS asks.
    Show the rule
    Temp. Reg. § 1.469-5T(f)(4)
  • Some states don't follow. California, New York and others ignore federal bonus depreciation.
    Show the rule
    State conformity to IRC § 168(k) varies by state
  • There's a yearly cap. In 2026, business losses over $512,000 (joint) carry forward.
    Show the rule
    IRC § 461(l); Rev. Proc. 2025-32 § 4.31 ($256,000 single / $512,000 married filing jointly)
Founding 10 cohort

10% of your tax savings, charged only if your tax goes down. Includes the cost segregation study (normally $2,500). 10 of 10 spots open.

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Tax library

Learn before you commit

35 plain-English guides on cost segregation, bonus depreciation, Form 3115, and IRS audit readiness.

What is a cost segregation study?

How it works, what it costs, and who benefits most.

Read guide

Bonus depreciation rules for 2026

What qualifies and how the permanent 100% OBBBA rule works.

Read guide

Form 3115 catch-up guide

Claim missed depreciation without amending prior tax returns.

Read guide

Browse all 35 guides

FAQ

Common questions

What is the “STR tax loophole”?
Normally, rental losses can't lower the tax on your paycheck. A short-term rental is the exception: if guests stay 7 days or less on average and you put in enough hours yourself (usually 100+ and more than anyone else), the IRS treats it like a business you run, so its losses can offset your W-2 income. (Treas. Reg. § 1.469-1T(e)(3)(ii)(A); Temp. Reg. § 1.469-5T.)
Do I have to be a Real Estate Professional (REPS)?
No, you do not need Real Estate Professional Status for a short-term rental. REPS (750+ hours and more than half of your working time in real estate) is a separate rule for long-term rentals; the short-term rental route only requires a 7-day-or-less average stay and material participation in your rental. (IRC § 469(c)(7); Treas. Reg. § 1.469-1T(e)(3)(ii)(A).)
How do I show material participation?
Most owners qualify by logging either 500+ hours a year, or 100+ hours a year and at least as much time as any cleaner, co-host, or handyman. You and your spouse can combine your hours even if only one of you is on title. (Temp. Reg. § 1.469-5T(a)(1), (a)(3), (f)(3).)
What does a cost segregation study do?
A cost segregation study separates parts of your property—like appliances, cabinets, dedicated wiring, decks, hot tubs, and landscaping—into 5-, 7-, and 15-year buckets instead of the slow 27.5-year building schedule. Those shorter-life parts can then be written off much faster in year 1. (IRS Publication 5653; IRC § 168.)
Is bonus depreciation 100% right now?
Yes, federal bonus depreciation is 100% for qualifying property acquired and placed in service after January 19, 2025. Property acquired under a contract before that date follows the earlier phase-down schedule, and several states do not follow federal bonus depreciation. (IRC § 168(k); Pub. L. 119-21.)
Will I owe tax back when I sell?
Yes, taking bigger deductions now means part of that depreciation is taxed back when you sell, unless you defer it with a 1031 exchange or hold the property long-term. A study moves the tax savings to year 1 rather than erasing the tax forever. (IRC §§ 1245, 1250, 1031.)

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Find out what your rental may qualify for

Run our 2-minute STR Qualification Quiz or see our Founding 10 offer (10% of your tax savings, charged only if you realize a verified tax savings).

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This content is not tax or financial advice for you. Please talk with a CPA to find what's right for your situation.