Short Term Rentals

When you rent out a property but also use it personally for part of the year, the IRS applies a special set of rules under Section 280A that can significantly limit your ability to deduct rental expenses. The key question is whether your personal use crosses a threshold that causes the IRS to classify the property as a residence rather than a pure rental. Once that line is crossed, your rental deductions are capped at your rental income, and a net loss is not allowed. How you allocate expenses between personal and rental use - and in what order you deduct them - determines exactly what you can and cannot write off. There is also a narrow exception that excludes rental income entirely if you rent the property for 14 days or fewer in a year. Understanding these rules before you file can prevent costly errors and missed planning opportunities.

Converting a rental property from short-term to long-term use partway through the year creates two distinct activity periods that the IRS treats differently. A short-term rental (average guest stay of seven days or fewer) is not automatically a passive activity under IRC §469, which means losses may be deductible without the passive loss limitations that apply to most long-term rentals. When you switch mid-year, you need to allocate income, expenses, and depreciation between the two periods, document the date of conversion, and understand how your depreciation method may need to change. There is also a critical structural question that most articles skip: whether those two periods are actually treated as two separate activities depends on an affirmative position you take under the §1.469-4 grouping rules - not on how many lines appear on your Schedule E. The default is one activity, and the default result is passive treatment across the board.

A home office deduction claimed against a short-term rental property almost never holds up, and attempting it can actively damage the rest of the return. Section 280A creates a self-contained framework that overrides the general business deduction rules most STR owners are thinking of when they hear this idea floated on social media. The exclusive use requirement alone is fatal to the claim in nearly every real-world scenario - a space rented to guests cannot simultaneously qualify as space used exclusively for business. Worse, days the owner spends at the property conducting business may count as personal use days under §280A(d), triggering the vacation home limitation and capping rental deductions at gross rental income. A separate but related problem arises when the owner claims a dedicated office space that guests never use but still has access to the rest of the house - that arrangement affects how the entire property is depreciated, not just the claimed office. STR owners should have their specific situation reviewed before filing.

The "STR loophole" refers to a provision in the passive activity loss rules that allows short-term rental losses to offset non-passive income - such as W-2 wages or business income - without requiring real estate professional status under IRC Section 469. It works because rentals with an average guest stay of seven days or fewer are not classified as rental activities under the passive activity regulations, which means the material participation tests apply instead of the automatic passive classification. The seven-day average period test is not the only path: a rental can also escape passive treatment under other exclusions in Treas. Reg. 1.469-1T(e)(3), but the seven-day rule is the one most relevant to typical short-term rentals. When both the activity classification and material participation tests are met, depreciation and other deductions flow directly against ordinary income - but the conditions are strict, the IRS is paying attention, and for many taxpayers the strategy is not the right fit at all.

Renting your personal home on a short-term rental platform like Airbnb can have significant tax consequences, and the rules depend heavily on how many days you rent versus how many days you use the property yourself. The IRS uses specific day-count thresholds to classify your rental activity, which then determines what expenses you can deduct and how you must report income. Three common situations each carry their own rules: renting out your entire home, renting out a portion of your home while you continue living there, and renting out an accessory dwelling unit (ADU) on your property. Because dollar thresholds, state rules, and local regulations change, always confirm current figures with official IRS publications and your state tax authority.