STR Material Participation - Out-of-State Owner, No Property Manager

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STR Material Participation - Out-of-State Owner, No Property Manager

Laura S.
Member since 2020 · 2 posts · 4 votes

I have never posted before but am really hoping for input from STR owners and CPAs on whether I may qualify for material participation under the STR tax loophole as I am quite sure I do but my CPA says otherwise.

Background:

  • Bought STR in 2022 in a popular ski area
  • Put into service late 2023, been a solid performer since; we did the basic cosmetic work ourselves and used trades for major upgrades
  • Average guest stay under 7 days
  • Live in tristate area, home is in VT
  • Self-manage (no property manager), rotate cleaners seasonally and have separate people doing snow removal, hot tub, lawn mowing

My CPA says I can't claim material participation because I don't live in the same state as the property. But I just spoke with a friend who has an STR equally far away and his CPA approved material participation. Now I'm questioning whether I missed out on claiming this for 2023-now.

My Activities (easily 100+ hours/year):

  • All guest communications and booking management
  • Coordinating cleaners, snow removal, lawn care, hot tub maintenance, contractors
  • Ordering all supplies
  • DIY repairs and painting during visits
  • Taking marketing photos
  • Town permitting correspondence (new regulations enacted this year)
  • This year: intensive setup of new booking management software with virtually no user interface (smh OwnerRez)
  • All of this is not including travel which I understand is something that is typically not viewed as applicable

My Understanding: I believe I meet Test #3: 100+ hours annually, and no one else (not cleaners, contractors) spends more time on the property than I do.

Questions:

  1. Does living out-of-state actually disqualify me from material participation? (My CPA says it triggers an audit, friend's CPA was fine with it)
  2. For those who've claimed this successfully while living far from the STR - how did you document it?

I'm considering switching CPAs to someone more familiar with STR tax strategy, but wanted to get some real-world perspectives first.

Anyone dealt with this situation? Any CPA recommendations who specialize in STR tax?

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Andrew SteffensBusiness Member
Tampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
9mo

I agree with Aaron, most of my clients live outside of FL and have houses here with me.  I have heard some differing opinions on a few nuanced items but I 100% think you are fine and should consult with a new CPA.  Good luck!

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  • Aaron ZimmermanBusiness Member
    Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
    9mo

    Living out of state has no impact on material participation. The hours you spend working on the property do. If you have 100 hours and more than anyone else's time, you meet the material participation test. You just need to have a time log for yourself and the other people that worked on the property. 

    Using the STR loophole does not automatically mean an audit but it may Increase audit risk if you're taking large losses against active income. As long as you can defend yourself in the event of an audit with the time log, you're putting yourself in a good spot.

    I would also try to not use the property too much for personal use as that will reduce the benefit of the STR loophole.

    based on your conversation with your current cpa, I think it'd be best to find someone new for this upcoming tax season. 

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  • Andrew SteffensBusiness Member
    Tampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
    9mo

    I agree with Aaron, most of my clients live outside of FL and have houses here with me.  I have heard some differing opinions on a few nuanced items but I 100% think you are fine and should consult with a new CPA.  Good luck!

    [email protected]813-563-0877
    Vacation Rentals of Florida53 Reviews
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    3Reply
  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    9mo

    @Laura S.,

    Living out of state does not disqualify you from material participation. There is no IRS rule that says you have to live near or in the same state as the STR. Distance can raise questions if records are weak, but it does not fail the test by itself.

    With average stays under 7 days, the STR is evaluated under the material participation tests. Test #3 is commonly used. More than 100 hours and no one else spending more time than you. Cleaners and contractors only matter if a single person exceeds your hours, which usually is not the case.

    The work you described counts. Guest communication, bookings, coordinating vendors, supplies, permitting, software setup, and hands-on repairs all qualify. Travel time does not count, but the work done while you are there does.

    This sounds more like a conservative CPA position than a technical issue. STR rules are niche and not all CPAs are comfortable applying them.

    If this deduction is meaningful for you, it is worth talking to a CPA who regularly handles STRs and focuses on documentation rather than geography.

    Good luck to you, and happy to connect.

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  • Laura S.
    OP
    Member since 2020 · 2 posts · 4 votes
    9mo

    Appreciate the feedback, everyone! Exploring my options now.

    2Reply
  • Bill HamptonBusiness Member
    Accredited Investment Fiduciary, AIF®, Financial Planner, Tax Strategist, Real Estate Investor · Atlanta, GA · Member since 2012 · 2k+ posts · 978 votes
    9mo

    Laura, your accountant is wrong. You don't have to live in the same state. I recommend finding a tax strategist/tax accountant who specializes in real estate taxation and is proactive instead of reactive when providing advice.

    Working remotely with your accountant will expand your options.

    I would also recommend looking for an accountant willing to work with you throughout the year. You want an accountant who can help you strategize and who is responsive when you want to know the consequences of the financial decisions you are making throughout the year.

    Happy to answer any questions. Good luck.

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  • Reyjie Sobebe
    Member since 2025 · 29 posts · 7 votes
    9mo

    Living out of state does not disqualify you from material participation for an STR. The tax code doesn't care where you live; it cares what you do and how much time you spend doing it. With average stays under 7 days, you're correctly in the STR exception to passive loss rules, and Test #3 (100+ hours and more than anyone else) is the one most self-managing owners qualify under. Cleaners and contractors generally don't count as "participants," so as long as you're the one handling bookings, guest comms, coordination, permitting, and ops (which it sounds like you are), distance alone is irrelevant. Where your CPA is partially right is audit risk out-of-state owners get scrutinized more, so documentation matters. Successful folks I've seen keep contemporaneous time logs (calendar + spreadsheet), saved emails/messages, software setup records, invoices they coordinated, and notes tied to actual dates. If your CPA is blanket-denying eligibility based on geography, that's usually a sign they're conservative or not STR-savvy. I ran into a similar wall before moving to advisors who actually understand STR rules and how to defend them, I used automated tools to helped me sanity-check participation tests and documentation expectations without it feeling salesy or aggressive. Short version: your facts support material participation; the key is clean records and a CPA who knows how to stand behind them.

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  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    9mo

    It sounds like your CPA is questioning whether you actually did the work since you were far away from the property. He might be ablt to question you to see if you actually did the work, but he should be taking your word.

    That or the accountant just does not want to take any risky positions at all.

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