Material Participation & Short Term Rental Loophole Explained In Simple Terms

Curious about how the “Short Term Rental Loophole” can save you thousands in taxes? Let me break it down in simple terms, drawing from my own experiences!

There’s a tax code that allows anyone (even non-real estate pros) to engage in rental activities. By meeting the IRS Material Participation Tests, you can apply depreciation losses from a short term rental (STR) against your active income—think W2 and capital gains—for significant tax savings.

How to meet the Material Participation Tests?

One key rule that many short-term rental investors (myself included) rely on: Spend over 100 hours on the activity, ensuring no one else (like cleaners or contractors) logs more time than you.

Trust me, 100 hours in a year is manageable! Focus on what you enjoy—like creating your dream game room or home theater experience—and hire help for the rest.I’ve loved the design process—who doesn’t enjoy browsing Pinterest or shopping 🛒 to make a space shine? And nothing beats the thrill of seeing that first booking come through!

You and your spouse can combine hours to meet the requirement. If you’re busy, consider having your partner take on some tasks.

Activities that count include:

🎨 Designing the STR

📦 Ordering supplies - Optimizing your listing

💬 Guest communications

🤝 Meeting with service providers

📊 Bookkeeping

Just remember, hours spent searching for properties don’t count as management activities.

🏡 At Savvy Breezy Vacation Rentals, we help short-term rental owners maximize revenue, save time, and enhance guest experiences. Interested in saving on taxes while boosting your rental income? Let’s chat! Book a free 30-minute discovery call today: calendly.com/jdeninger/30min-discovery-call

Disclaimer: This post isn’t tax or legal advice. Always consult with a CPA or attorney specializing in short-term rental strategies for your unique situation.