IRS Reference Guide

1. What Counts as a Short-Term Rental?

The IRS generally classifies a property as a short-term rental (STR) when the average rental period is 7 days or fewer per guest. This classification matters because it affects how the property is taxed, what deductions you can take, and whether your losses are deductible against other income.

Key reference: IRC Section 469 governs passive activity rules that apply to most rental properties. STRs can be an exception when material participation is established.

2. The 14-Day Rule

One of the most important rules for rental property owners is the 14-day rule under IRC Section 280A. This rule determines whether a property is treated as a rental business or a personal residence for tax purposes.

Scenario	Tax Treatment	Deductions
Rented 14 days or fewer per year	Personal residence — rental income not taxable	Rental expenses not deductible; mortgage interest & property taxes deductible as itemized deductions
Rented more than 14 days; personal use ≤ 14 days or 10% of rental days	Rental property — full business treatment	All ordinary and necessary rental expenses deductible; losses may offset other income (if material participation)
Rented more than 14 days; personal use exceeds 14 days or 10% of rental days	Mixed-use property	Expenses must be allocated between rental and personal use; losses generally limited to rental income

3. Passive Activity Rules & Material Participation

Under normal passive activity rules (IRC Section 469), rental losses can only be deducted against passive income — not against wages or business income. However, if you materially participate in your STR activity, the losses may be treated as active (non-passive) and deductible against all income.

This is one of the most valuable and most scrutinized tax strategies for STR owners. The IRS requires documentation to support a material participation claim.

The 7 Material Participation Tests

You meet material participation if you satisfy any one of these seven tests for the tax year:

#	Test	Requirement
Test 1	500-Hour Test	You participated more than 500 hours in the activity during the year.
Test 2	Substantially All Test	Your participation was substantially all of the participation in the activity by all individuals (including non-owners).
Test 3	100-Hour & More-Than-Others Test	You participated more than 100 hours and at least as much as any other individual.
Test 4	Significant Participation Activity Test	The activity is a significant participation activity (SPA) and your total hours in all SPAs exceeds 500 hours.
Test 5	5-of-Prior-10-Years Test	You materially participated in the activity in any 5 of the prior 10 tax years.
Test 6	Personal Service Activity Test	The activity is a personal service activity and you materially participated in any 3 prior years.
Test 7	Facts & Circumstances Test	You participated on a regular, continuous, and substantial basis during the year (generally requires 100+ hours; manager-for-hire does not disqualify).

4. Real Estate Professional Status

A separate (and more powerful) exception to passive activity rules is Real Estate Professional Status under IRC Section 469(c)(7). If you qualify, rental losses are not subject to passive loss limits at all.

To qualify, you must meet both of these requirements:

• More than half of the personal services you perform in all trades or businesses during the year are in real property trades or businesses in which you materially participate.
• You perform more than 750 hours of services during the year in real property trades or businesses in which you materially participate.

This is a high bar — typically applicable if real estate management is your primary occupation. W-2 employees generally cannot qualify unless their spouse also qualifies and you file jointly.

5. Mileage Deductions for STR Owners

Every trip you make to your rental property for a business purpose is potentially deductible. This includes driving to check on the property, meet a guest, oversee a repair, make a supply run, or meet with a contractor. These miles add up fast — and most STR owners leave this deduction on the table because they never tracked them.

There are two IRS-approved methods for deducting vehicle expenses:

Method	How It Works	Best For
Standard Mileage Rate	Multiply business miles driven by the IRS standard rate (67 cents/mile in 2024). No need to track individual car expenses.	Most STR owners — simpler recordkeeping, often higher deduction
Actual Expense Method	Deduct the actual costs of operating your vehicle (gas, insurance, maintenance, depreciation) proportional to business use.	Owners with high actual vehicle costs and strong recordkeeping

What Trips Qualify?

Trips must be for an ordinary and necessary business purpose related to the rental property. Qualifying trips typically include travel to the property for repairs, cleaning, guest check-in/check-out, inspections, meeting contractors, purchasing supplies directly for the property, and meetings with your property manager or accountant regarding the property.

Commuting from your home to a property you also personally use may not qualify in all circumstances. Consult your CPA for guidance specific to your situation.

Recordkeeping Requirements for Mileage

The IRS requires contemporaneous mileage records that include: the date of the trip, the destination, the business purpose, and the number of miles driven. STRTrackr captures all of this automatically when GPS tracking is active during an activity log.

6. Deductible Expenses for STR Owners

When your property qualifies as a rental business, many ordinary and necessary expenses are deductible. Common deductible expenses include:

Category	Examples	Notes
Mortgage Interest	Interest paid on the rental property loan	Must be allocated if mixed-use property
Property Taxes	Annual real estate taxes	Must be allocated if mixed-use property
Depreciation	Annual deduction for the structure and qualifying improvements	Residential rental: 27.5-year straight-line; cost segregation may accelerate
Repairs & Maintenance	Plumbing fixes, painting, appliance repairs	Fully deductible in the year incurred; improvements must be capitalized
Cleaning & Supplies	Cleaning services, paper goods, toiletries	Fully deductible
Platform Fees	Airbnb host fees, VRBO subscription	Fully deductible
Utilities	Electricity, gas, internet, water (if paid by owner)	Must be allocated for any personal use period
Insurance	Rental property insurance, umbrella policy	Fully deductible for rental period
Professional Fees	CPA fees, attorney fees related to the rental	Fully deductible
Advertising	Professional photography, listing fees	Fully deductible

7. Recordkeeping Requirements

The IRS expects contemporaneous records — that means logs made at or near the time the activity occurred, not reconstructed from memory months later. For material participation claims especially, your documentation is critical.

Good records should include:

• Date and description of each activity performed
• The amount of time spent (hours and minutes)
• Who performed the activity
• The property the activity relates to
• Supporting evidence where possible (photos, receipts, contractor invoices)

The IRS recommends keeping tax records for a minimum of 3 years from the date you filed your return, or 2 years from the date you paid the tax, whichever is later. For rental property, retain records for as long as you own the property plus 3 years (because of depreciation recapture).

8. Key IRS Publications & References

Resource	What It Covers
IRS Publication 527	Residential Rental Property — comprehensive guide for rental property owners
IRS Publication 925	Passive Activity and At-Risk Rules — material participation tests
Schedule E (Form 1040)	Supplemental Income and Loss — where rental income and expenses are reported
IRC Section 280A	The 14-day rule and personal residence vs. rental property classification
IRC Section 469	Passive activity loss rules and material participation definitions
IRC Section 469(c)(7)	Real estate professional exception to passive loss rules
Treasury Reg. 1.469-5T	Detailed rules for the 7 material participation tests