STR tax Loophole vs MTR?

Question

Just wondering if the STR tax loophole can also be applied to midterm rentals at all against your W2. Especially if you are involved with cleaning and stocking, ect.

Vivian Yip · Answer

Hi Amy,

Great question. I'm speaking from experience as an operator and investor and my own tax experience. There are two main tests for the STR loophole:
1) Material participation
2) 7 days or less is the average stay

Therefore, in the real estate world, MTR is usually 30 days and more and would fail the second test. As I understand it, you can operate as a STR first, take the benefits, the transition to MTR later.

Hope this helps!
Vivian

Aaron Zimmerman · Answer

To meet the STR loophole requirements, the stay has to be less than 7 days. Since MTRs are generally more than 7 day stays, it will not qualify for STR loophole. MTRs can offset passive income from long term rentals.

The only way to offset MTR losses against active income would be through the real estate professional status.

Stephanie Acebes · Answer

Great question, Amy! From what I understand, the STR "loophole" is pretty specific to rentals with shorter stays—usually under 7 days, or up to 30 days if you’re very hands-on with things like cleaning and stocking. Most midterm rentals (like 1-6 month leases) usually don’t qualify for this, unless the average stay is kept under 30 days and you're really involved in guest services.

For MTRs, unless you actually meet those strict requirements or qualify as a full real estate professional for tax purposes, it can be tricky to use rental losses to offset W2 income. It definitely can get pretty complex trying to sort what qualifies for which category, especially if you have a mix of property types!

Personally, I think tracking hours, types of services, and average guest stays is really important—just in case you ever need to show your material participation. Anyone else here juggling both STRs and MTRs and want to share how they’ve handled this with their accountant?

Nate Meeker · Answer

What everyone else said is true, the only other item to consider would be entity structuring surrounding your "self" management company. If there is enough income from the properties, there could be room for other tax strategies.

Amy Houghton · Answer

Thanks everyone!

Ryan Carriere · Answer

@Amy Houghton the short answer, as you've seen here, is generally not. You would have to meet REPS (real estate professional status) to turn your MTR to non-passive to offset other non-passive income.

If the average stay per guest is 7 days or less, then we're talking about the STR tax strategy, and therefore REPS requirements would not be necessary.

Ashish Acharya · Answer

@Amy Houghton

The STR tax loophole generally does not apply to midterm rentals which are typically leased for 30 days or more. Under IRS rules, a property qualifies for the STR loophole if the average guest stay is seven days or less,  This allows rental losses including depreciation, to offset W-2 or other active income without needing REPS.

If you operate this as bed and breakfast, then you can still do what STR does with MTR.

However, once the average stay exceeds 30 days and it is not hotel/BAB, the IRS treats the activity as a long-term rental, making it passive by default. To achieve similar tax benefits for midterm rentals, you would need to qualify as a Real Estate Professional by spending over 750 hours per year and more than half of your working time in real estate activities.This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice

Amy Houghton · Answer

Makes sense, thanks for the tip!

STR tax Loophole vs MTR?

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