Action Steps to Qualify for the Short-Term Rental (STR) Loophole and Maximize Bonus Depreciation in 2025
The short-term rental (STR) tax loophole is one of the most powerful strategies available to investors. Unlike long-term rentals, qualifying STRs can be treated as active businesses rather than passive activities — meaning depreciation and other paper losses can offset your W-2 wages or business income. With 100% bonus depreciation back on the table in 2025, the opportunity is greater than ever.
But knowing about the loophole isn’t enough. The real advantage comes from how you run your property. Below are investor-focused tips to help you qualify for the STR loophole, stay compliant, and maximize your tax savings.
1. How Can You Structure Your Rental to Meet the 7-Day Rule?
The cleanest way to qualify for the STR loophole is by ensuring your average rental period is seven days or less. This usually means focusing on vacation or weekend markets where short bookings are the norm.
If longer stays are common in your area, you can still qualify — but you’ll need to provide significant services (such as daily cleaning, meals, or concierge-style offerings) for stays up to 30 days. Keep a close eye on your booking history: one long-term stay can skew your averages, so plan accordingly.
2. How Do You Prove Material Participation in Your STR?
The IRS requires that you materially participate in your STR for the losses to be treated as non-passive. That means logging your time spent on guest communications, turnovers, maintenance, marketing, and other operations.
A good benchmark: exceed 100 hours annually and make sure no one else (like a property manager or cleaner) logs more hours than you. Many self-managing hosts easily meet this, but the common pitfall is lack of documentation.
💡 Pro tip: Use a spreadsheet or time-tracking app to record dates, hours, and tasks. If audited, this log becomes your strongest proof.
