STR loophole for multi family properties

Seattle, WA · Member since 2014 · 13 posts · 4 votes

I purchased a 4plex earlier this year and 1 of the units is used as an Airbnb. Where in the tax code can we get more info about using the STR loophole in this example?

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Michael PlaksPro Member

Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes

8mo

Quote from @Ryan J.:

I purchased a 4plex earlier this year and 1 of the units is used as an Airbnb. Where in the tax code can we get more info about using the STR loophole in this example?

You can look at Section 469 and Regulations 1.469 but you won't find clear answers there. Or anywhere, for that matter.

Tax professionals do not have a consensus on whether you can claim the STR loophole benefits on only one out of 4 units.

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Michael PlaksPro Member
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
8mo
Quote from @Ryan J.:

I purchased a 4plex earlier this year and 1 of the units is used as an Airbnb. Where in the tax code can we get more info about using the STR loophole in this example?

You can look at Section 469 and Regulations 1.469 but you won't find clear answers there. Or anywhere, for that matter.
Tax professionals do not have a consensus on whether you can claim the STR loophole benefits on only one out of 4 units.
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G. Brian DavisPro Member
Investor · Hatboro, PA · Member since 2016 · 2k+ posts · 842 votes
8mo
What you're referring to is the short-term rental exception under IRC Section 469, not a "loophole" per se. If the average stay is 7 days or less (or 30 days with substantial services), the STR activity can be treated as non-passive, allowing losses to offset W-2 or active income if you materially participate.
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Sean GrahamBusiness Member
Investor , CPA · Detroit, MI · Member since 2016 · 582 posts · 248 votes
8mo
Hi Ryan, Owner of Maven Cost Seg here.
Good question, and you’re right to ask where this actually lives in the code.

The "STR loophole" isn't a single rule, as it comes from how Section 469 treats short average stays and material participation. If the average stay is 7 days or less (or 30 with significant services), that unit can be treated as non-passive if you materially participate.

In your case, only one of the four units is an STR, so it doesn't automatically convert the whole property. You're dealing with mixed-use activity, and losses are typically allocated at the unit level unless you've made grouping elections.

Cost Seg can still help, but only on the qualifying portion and only if the activity is actually non-passive for you. Definitely worth reviewing with a CPA who works with STRs, as the details matter here.

Hope that helps.
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- Jeff Roth
  Real Estate Consultant · Ann Arbor, MI · Member since 2022 · 460 posts · 250 votes
  8mo
  Quote from @Sean Graham:
  
  Hi Ryan, Owner of Maven Cost Seg here.
  Good question, and you’re right to ask where this actually lives in the code.
  
  The "STR loophole" isn't a single rule, as it comes from how Section 469 treats short average stays and material participation. If the average stay is 7 days or less (or 30 with significant services), that unit can be treated as non-passive if you materially participate.
  
  In your case, only one of the four units is an STR, so it doesn't automatically convert the whole property. You're dealing with mixed-use activity, and losses are typically allocated at the unit level unless you've made grouping elections.
  
  Cost Seg can still help, but only on the qualifying portion and only if the activity is actually non-passive for you. Definitely worth reviewing with a CPA who works with STRs, as the details matter here.
  
  Hope that helps.
  
  Great answer Sean. Ryan, you asked about taking advantage of the short-term rental active tax benefits if you document "material participation" in the management of the short-term rental portion of your 4-plex for the IRS.
  We have helped clients do what you are doing with multifamily properties in Michigan using one unit as a short-term rental and we have helped clients buy multifamily properties with the intention of using all the units as short-term rentals.
  Sean from Maven Cost Segregation is a great resource for anyone on the tax side of things.
  To Your Success!
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Jason MalabuteBusiness Member
Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 897 votes
8mo
The tax code you are referring to is tax code 469
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Aaron ZimmermanBusiness Member
Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
8mo
I would reach out to a cpa that is well versed in this area of the tax code. There's a lot of nuance on multi-family. Some CPA's say you can, some CPA's say you can't.
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Ashish AcharyaBusiness Member
CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
8mo
Ryan, Great question, and this comes up a lot with mixed-use properties like a small multifamily.

At a high level, the "STR loophole" isn't one single section of the tax code. It's the interaction between a few sections. The big ones are IRC §469 and the regulations under it, especially Reg. §1.469-1T(e)(3), which explains why rentals with average stays of 7 days or less are not automatically treated as passive rental activity.

In your case, the Airbnb unit is analyzed separately from the long-term units. If that one unit has average stays of 7 days or less and you materially participate in managing it, that activity can be non-passive even though the rest of the fourplex is long-term rental and remains passive.

Material participation is still required, so you’d be looking at the standard §469 tests, most commonly the 100-hour test where no one else spends more time than you.

One thing to be careful about is allocation. Income, expenses, and depreciation need to be properly split between the STR unit and the long-term units. Cost segregation, if done, also has to follow that allocation.

A CPA who works with STRs and mixed-use properties should be comfortable citing §469 and the related regs when applying this. That’s really where the “loophole” lives.

Good luck, and happy to connect.
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Ashish AcharyaBusiness Member
CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
8mo
The main place that I would start is IRC section 469, which governs the passive activity loss rules. Under this section, an activity is not treated as a rental activity if the average rental period or stay is seven days or less , which is what allows many short-term rentals to fall outside the normal passive rental rules. Now that the activity is no longer treated as a rental, you also have to materially participate in the STR activity for any losses to be treated as non-passive and potentially offset W-2 or other active income. In your case, with a 4-plex where one unit is used as an Airbnb, that unit can be analyzed separately under these rules, while the remaining long-term units stay in the traditional rental category. The key is meeting the short-term stay requirement and being able to clearly document material participation in that STR unit. Good luck and happy to connect!
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Rohullah Sharifi
Dr · VA · Member since 2025 · 154 posts · 34 votes
8mo
For short-term rentals (STRs rented for fewer than 14 days per year), income is generally tax-free under IRS rules, but maintaining proper records is essential for substantiation. Taxpayers should keep a detailed calendar or booking record showing rental dates to verify compliance with the 14-day rule. Airbnb statements and Form 1099-K, if issued, serve as official documentation of rental income and platform fees, while bank records or direct payment receipts provide additional support. All records should be organized and retained for at least 3–7 years, ensuring accurate and professional documentation in case of IRS inquiries.
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Sean GrahamBusiness Member
Investor , CPA · Detroit, MI · Member since 2016 · 582 posts · 248 votes
8mo
Appreciate that, Jeff. Well said.

Good point on partial STR use in multifamily, too. That's an angle a lot of people overlook.
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