Been seeing a lot of STR tax posts lately and most of them stop at "get your average stay under 7 days and you can use the losses against W-2 income." Cool. That's the easy part. Almost nobody talks about the part where you have to prove it later.

Here's what I've picked up, some of it the hard way.

The 7 day thing is an average, not your listing setting.

It's total rental days divided by number of bookings for the year. Your 3 night minimum doesn't matter. Guy I know took a 40 day off-season booking because hey, guaranteed money, and it dragged his yearly average over 7. Whole activity flips back to passive. He found out in March when his CPA ran it. Check your average in November, not April.

Your co-host might be quietly wrecking you.

Clearing the 7 day test only gets you out of the automatic passive bucket. You still have to materially participate, and most people are leaning on the 100 hour test. Thing is, that one requires you to participate more than any other individual involved with the property. Cleaner counts. Handyman counts. Co-host absolutely counts. If your co-host logged 180 hours and you logged 120, that prong is gone, and 120 isn't anywhere close to the 500 hour test either. This one surprises people constantly.

Logs. Please just keep logs.

I know. I hated it too. But a spreadsheet you reconstruct from memory after the letter shows up is worth basically nothing, and Tax Court has tossed those over and over. What holds up is boring: date, hours, which property, what you actually did, written down that week. Guest messages and calendar entries back it up nicely. "Roughly 12 hours a week on the properties" is not a record.

Two side notes while I'm typing.

Cost seg is a better deal right now than it's been in years, since 100% bonus depreciation came back permanently under OBBBA for anything placed in service after 1/19/2025. If you're in California like me, though, the state doesn't conform. So you're carrying two depreciation schedules and two different bases from day one. Nobody warns you about this until it's already a mess.

And the unsexy one: keep your books per property. Once you're past a couple doors, the capitalize vs expense call on a turnover reno, personal use allocation, splitting cleaning and supplies across properties — that's the stuff your cost seg and your hours are actually sitting on. The fancy strategy only works if the boring layer underneath it is clean.

Anyway. Full disclosure, because I'd rather say it than have someone go find it: I invest out here in the Bay Area, and I got sick enough of doing all of this in spreadsheets that I ended up building software for it (Revenli). Not pitching anybody, happy to answer questions either way.

And obviously I'm not a CPA. Run your own situation by yours.

Real question for the group though — how are you all tracking participation hours? And has anyone actually had theirs challenged? I'd genuinely like to hear what held up and what didn't.