STR loop Hole

Albany, Albany County · Member since 2026 · 21 posts · 7 votes

Hi,

I've listened to pod casts that push STRs to high income earners as a way of decreasing active income taxes. Are their reputable companies to look for to take advantage of this loop hole? What are the potential liabilities of this strategy?

Josh

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Chris BrownPro Member

Investor · Locust Grove, GA · Member since 2023 · 25 posts · 17 votes

With STR investing, it's a bigger investment upfront for staging, furnishing, amenities driven with a ton of tools to use and optimize. It really is an active investment. And you have to show the IRS your contributions of hours to qualify. But the tax return is one of the four pillars of wealth creation that is highly leveraged in the STR market. There is good cash flow to be made. However it's no longer as "easy" as it once was.
The biggest opportunity for STR investing is using the accelerated depreciation process. I’ve used Remote Cost Seg to do this process. They were great. Though the trick is finding a good CPA who understands how to implement the cost seg study. I’m still looking. 👀
Hope this helps!

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Chris BrownPro Member
Investor · Locust Grove, GA · Member since 2023 · 25 posts · 17 votes
2d
With STR investing, it's a bigger investment upfront for staging, furnishing, amenities driven with a ton of tools to use and optimize. It really is an active investment. And you have to show the IRS your contributions of hours to qualify. But the tax return is one of the four pillars of wealth creation that is highly leveraged in the STR market. There is good cash flow to be made. However it's no longer as "easy" as it once was.
The biggest opportunity for STR investing is using the accelerated depreciation process. I’ve used Remote Cost Seg to do this process. They were great. Though the trick is finding a good CPA who understands how to implement the cost seg study. I’m still looking. 👀
Hope this helps!
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Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 4k+ votes
2d
I personally don't like the big push by professionals towards STR's.
If you brought a STR before 2022, you likely made money because your purchase price was low, interest rate was low and were experiencing a business model that was not 'concentrated / matured', cities and municipalities were not highly thinking about banning the business model.

I think a lot of people who purchased a STR over the past couple of years lost money.

It is definitely possible to buy a STR to reduce your taxes. Talk to your accountant to make sure you are following all the rules.

some risks / concerns are as follows
1) Need to spend time managing the STR
2) You have to find an accountant who is familiar with how to apply the cost segregation study + rules onto your return
3) The overall investment needs to hold up. If the city bans STR's, you may experience a loss in valuation.

Best of luck
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Aaron ZimmermanBusiness Member
Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
2d
I always tell those wanting to get into STRs that you want to be in the hospitality business. Some risks:
1. Initially, you’re reliant on the listing platforms such as Airbnb, vrbo, booking.com, etc for 100% of your revenue. The goal is to shift towards more direct marketing but Airbnb is making that harder with its upcoming rule changes.
2. Regulation risk - if rules are opaque in the town, they could ban STRs. Or even if they’re not, you could be SOL. You could pivot to MTRs in this case.
3. Buying the wrong product. In some markets, different unit types and bed/bath counts do better than others and you may be buying into a market that already has an oversupply of a unit type.
4. With STR strategy, you're accelerating a large amount of depreciation into year 1. So if you buy a property for $800k and you get $200k of depreciation benefit and then decide to sell for $750k net, you're stuck with $150k+ of gain, with a good chunk of that being ordinary recapture. Of course, you could do a 1031 exchange but then you'll need to do a cost seg on the new property because ordinary recapture can't be exchanged. In other words, you're putting yourself in a potential tax bomb years later. Of course, you did get the benefit in year 1, but something to consider. Don't spend the tax savings on non-investments.
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Andrew SteffensBusiness Member
Tampa, FL · Member since 2022 · 4k+ posts · 3k+ votes
2d
Hey Josh
So I know this is commonly referred to a loophole but its actually just tax law, you can in fact buy a STR and write the losses off your active income in year 1. So yes this can be a powerful tool. As mentioned above, you should be careful where and what you invest your money into in the STR world. It is very competitive for both location and amenities in most viable markets.
As far as a service - there are some out there - but I do not recommend using them. Most will take your money via a fee and then pair you with a local agent in the market(s) you are interested in and sort of middle man the whole process. You can cut out the middle man and find an agent yourself using the agent finder tool on this site, asking for referrals in host groups on Facebook, or even use AI. I actually got a new client today because I came up #1 as recommended by their prompt for finding them an STR.
Make sure you properly vet the agent and they have verifiable STR experience. A good STR agent will know where to invest in the local market to keep you both legal and hopefully profitable. I do this day in and day out for my clients here in Tampa, FL.
Good luck and if you have any questions don't hestitate to reach out!
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Eugenia ChetverechenkoBusiness Member
Accountant · Chicago, IL · Member since 2026 · 19 posts · 3 votes
1d
JJosh, I'd add a couple of things to what's already been mentioned. In my work with tax advisory clients, I've seen a few common pitfalls with STR strategies.
First, be mindful of the vacation-home rules if you plan to use the property personally, as that can limit your deductions.
Second, I'd be cautious with companies marketing STRs as turnkey tax-saving strategies. I have seen people go into these investments expecting huge deductions against their W-2 income without fully understanding the material participation requirements.
I've also seen an IRS audit where the taxpayer's time logs were closely examined and scrutinized, several entries were challenged, and the whole strategy fell through due to insufficient material participation. So documentation is critical. Simply hiring a property manager and occasionally checking in generally isn't enough. If you cannot substantiate your participation, you could end up with a significant unexpected tax bill, plus interest and potentially penalties.
I think STRs can be a very powerful and legitimate tax strategy when done correctly. But some promoters make it sound much simpler than it actually is. The investment needs to make financial sense on its own, and the tax strategy needs to be properly planned and executed.
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Melissa HaworthBusiness Member
Real Estate Agent · The Panhandle | The Emerald Coast | Panama City Beach | Destin · Member since 2017 · 295 posts · 110 votes
1d
Hey Josh, I'm an agent on the Florida Panhandle so I'll leave the actual tax advice to the CPAs, but I see a lot of buyers come in for this exact reason. Biggest thing I'd say is find a CPA who does a lot of STR clients first, then go find the property. The rules on average guest stay and how many hours you personally put in are pretty specific, and some people find out after closing that handing everything to a full service manager doesn't line up with what they needed. The other risk is buying something that only works because of the write off. You still need it to at least break even in year two and after. Have you picked a market yet?
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Josh CaldonPro Member
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Albany, Albany County · Member since 2026 · 21 posts · 7 votes
1d
Not yet. Just checking the pulse on this idea first.
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Ashish AcharyaBusiness Member
CPA, CFP®, PFS · Sarasota, FL · Member since 2017 · 5k+ posts · 3k+ votes
1d
Hey Josh, The strategy is real and it comes straight from the regs, so it’s not a gray area. If the average guest stay is 7 days or less, the IRS doesn’t treat the property as a rental activity under the passive loss rules. Combine that with material participation, usually 100+ hours and more than anyone else, or 500 hours total, and the losses can offset your W-2. Most of those first-year losses come from a cost seg study paired with bonus depreciation, which is back to 100% for property acquired after January 19, 2025.
The hours are the biggest liability. You have to meet material participation in the year you want the loss, and this is exactly what the IRS goes after in audits. If your cleaner or co-host puts in more hours than you, you fail the 100-hour test, so a full-service property manager usually kills the strategy. Keep a log as you go, not one you rebuild at tax time.
Recapture is the second issue. The depreciation you take up front comes back when you sell, and the short-life assets from the cost seg get recaptured at your regular rates, not capital gains rates. A 1031 or holding long-term helps, but plan for it from the start.
Third, if you offer hotel-style services, the income can land on Schedule C with self-employment tax. And since you’re in Albany, New York requires you to add back federal bonus depreciation, so the big year-one deduction is much smaller on your NY return than on your federal one.
As for companies, be careful with anyone selling the property, the cost seg study, and the strategy as one package. What you want is a CPA who runs the numbers before you buy and a cost seg firm that does an engineering-based study. BiggerPockets is a great place to find both, and most real estate CPAs work virtually.
Happy to connect!
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Sean GrahamBusiness Member
Investor , CPA · Detroit, MI · Member since 2016 · 594 posts · 249 votes
1d
I'm Sean, owner of Maven Cost Segregation. The strategy is legit, as long as your average guest stay is seven days or less and you log over 100 hours running it yourself. The main liability is poor record keeping or letting a property manager log more hours than you, which blocks the write off against your W2.
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John RacinePro Member
Rental Property Investor · Casselberry, FL · Member since 2008 · 229 posts · 115 votes
1d
Josh, the CPAs here covered the rules well, so I'll add the operator side, because that's where I see people get surprised.
The average-stay test doesn't just change how you file, it locks in how you run the property. I run most of my units as a mid-term/short-term hybrid: 30 to 60 day minimums, with short stays only filling the gaps. It's a strong model in a lot of markets, but a calendar like that will never average 7 nights or less. If the tax treatment is the reason you're buying, you're signing up for true short stays: more turnovers, more guest messages, more cleanings to coordinate. Shifting to monthly guests in a slow year is still an option, but it likely costs you the tax benefit for that year, so ask your CPA how that would play out before you count on it.
The hours rule works the same way. I co-host STRs for other owners, so I see the other side of this. If a co-host or manager handles pricing, guest messages and vendors, they're the one putting in the hours. Owners who want the tax treatment have to stay hands-on and log their time as they go, not try to rebuild it in April.
My bigger piece of advice: underwrite the property as if the write-off didn't exist. If it only works with the tax benefit, you own an expensive tax shelter and you're stuck with it if the city changes the rules. If it cash flows on its own, the tax savings are a bonus, and you keep the flexibility to go mid-term if short stays soften in that market.
Disclosure: I co-host short-term and mid-term rentals for other owners.
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Trent Reeve
Atlanta · Member since 2022 · 720 posts · 648 votes
1d
I know a couple of big W2 earners that bought places this year for the tax break and then plan on having them managed by someone else next year going forward.
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