Looking to Reduce Your Tax Bill Through Real Estate?
Learn how you can save more as an American rental property owner below.
About
The Short-Term Rental (STR) Tax Loophole is a powerful legal and IRS-recognized opportunity that savvy investors are using to significantly reduce their tax burden. The best part? This strategy does not require Real Estate Professional status.
Under IRS Regulation 1.469-1T(e)(3)(ii)(A), short-term rental income (from stays averaging 7 days or fewer, or under 30 days offering hotel-like services) is excluded from “rental activity” status, allowing qualified investors to claim non-passive losses.
What you need:
✔️ Meet material participation tests (e.g., 100+ hours and more time than anyone else)
✔️ Offset non-passive income with STR losses
✔️ Leverage depreciation with cost segregation
✔️ Avoid common pitfalls like misuse of the 7-day rule or failing to track hours
How
STRs allows investors to capitalize on non-passive losses, unlocking massive deductions, especially when combined with smart depreciation strategies. A smart CPA will guide you through attaining cost segregation studies to reclassify 20–30% of your property into 5 and 15-year assets.
For example, $1M property in 2022 could yield around $250K in depreciation deductions.
This tool is significant because these losses are non-passive which can offset other U.S. source income.
Heads-up: 100% bonus depreciation is phasing out. In 2025 it dropped to 40% and is on track to be gone by 2027. Acting now can lock in savings while they last.
Mistakes to avoid:
- Misclassifying your property or rental period
- Misunderstanding the “less than 7 days” rule
- Failing to track your personal use days
- Neglecting to log contractor and cleaner hours
- Overlooking local regulations or zoning issues
FQ&A
Does This Apply to Foreign Properties?
Yes, STR tax strategies can apply to properties foreign to the U.S., but bonus depreciation isn’t allowed, and you’ll need to use the slower ADS method for depreciation.
Will the Loophole Ever Close?
Unlikely. Though the law was originally written for hotels, there’s no current legislation threatening its removal. Still, investors should act while bonus depreciation remains available.
Ready to implement this strategy? Schedule a free consultation with our tax specialists and start saving thousands annually.
