Short term renal TAX effect on long term rental

[Iman Janahmadi]

Hello

My spouse and I are exploring the idea of purchasing a short-term rental property, primarily for the tax advantages. We currently own a couple of long-term rentals, but due to income limitations, we’re unable to use those losses to offset our W-2 income.

We’ve read that under certain conditions, actively managing a short-term rental might help us qualify as real estate professionals, allowing us to treat the losses as non-passive and use them to offset W-2 income.

Do you have experience with this strategy? We’d really appreciate any guidance or insights you can share—especially around whether adding a short-term rental can help us meet the real estate professional requirements from a tax standpoint.

Thank you!

[Aaron Zimmerman]

STR Loophole does not equal real estate professional status. Real estate professional status has more stringent requirements. However, both may allow you to achieve your goals of writing off rental losses against active income.

A few key items to know on STR loophole:

1. Property must be rented 7 days or less. 
2. you/you and your spouse must materially participate (three most common options are 500 hours; 100 hours and more than anyone else's time, and substantially all the activity). 
3. you can't use it more than 14 days or 10% of fair rental days for personal use. Otherwise, the tax benefits of the STR go away.

Its a very powerful strategy but there's a lot of pitfalls. You'll want your cpa to guide you on which hours count for materially participating (I.e. hours that drive your STR business forward) and make sure you're compliant and set up in the best position in the event of an audit.