After we got it ready, we did hire a local management company and while we still go there every 6 weeks or so to continue updating things etc, I do not think we would be able to claim material participation in the years ahead while we have a management company.

For my STR investor friends living under rocks - or have had a failed offer or transaction on the vacation rental investment they were waiting for..don't lose faith and there is still material participation hope! 

There are also NNN funds and all kinds of other syndications you can participate in. 

Yes, if the average stay is 7 days or less and you materially participate, short-term rental losses can offset W-2 income.

That means more cash flow, faster pay-back, and smarter reinvestment.What Is Cost Segregation & Why STRs BenefitCost segregation is the process of breaking down a property’s purchase price (or renovation cost) and reallocating portions of it into shorter depreciation lives (typically 5, 7, 15 years) instead of being lumped into the standard residential/structure life (27.5 or 39 years).For STRs (especially where average guest stays are short and you materially participate) this becomes even more powerful:It accelerates write-offs and frees up cash sooner.It helps you convert your property into an “active business” rather than passive income in the eyes of the IRS, making more deductions usable against other income.Personally I'm a realtor which makes it easy to gain "material participation" as I am classified as a "real estate professional"There are ways to structure a property that is managed by someone else and still qualify.

Whereas material participation in your LTRs is more "exclusive" to time you spend in your LTRs that you own.

Material participation and renting the property for 7 days or less are the keys. 

I suggest you look at IRS rules regarding active participation.

Quote from @Adam Wachter: Quote from @Rohullah Sharifi: Short-term rental (STR) activities require active participation and proper documentation to substantiate your involvement.

Perhaps the less eyebrow raising method would be, if your goal was a more hands-off approach, is to leave it as an str the following year but under full time management, once your material participation hurdles are met in the previous tax year.