STR Owners · 90 seconds · Dollar-weighted result

Can your STR losses actually offset your W-2 — or are they stuck as passive?

Material participation (IRC §469) is where most STR cost segregation strategies fail. A valid study doesn't help if the losses end up passive. This test tells you which bucket you're in — and what it's worth at your marginal bracket.

Why this matters: If you don't meet the material participation tests, the IRS treats your cost seg losses as passive — meaning they can't offset W-2 income this year, even with a perfectly valid study. We see STR owners get the study right and the participation wrong more often than the reverse.
Based on: IRC §469 + Treas. Reg. §1.469-5T Used by: CPAs evaluating STR eligibility Not tax advice. A CPA should confirm.
Question 1 of 6

What material participation actually means

Under IRC §469, rental real estate losses are passive by default — they can only offset passive income, not W-2 or active income. But short-term rentals (average stay ≤ 7 days) are not treated as rentals for §469 purposes. That means the losses can be non-passive — IF the owner materially participates.

Material participation is defined by 7 tests in the Treasury regulations (Reg. §1.469-5T). You pass if you meet any one of them. For STR owners, the realistic tests are:

The tests this quiz checks

  1. 500+ hours in the activity during the year (the simplest test to prove)
  2. Substantially all participation by the taxpayer — if you and your spouse do most of the work, this test can carry even at lower hour counts
  3. 100+ hours AND more than anyone else individually — the most common practical test for STR owners using a cleaner or co-host
  4. 5 of the last 10 years — if you've managed the property (or a similar rental) materially in prior years, you're covered

Tests this quiz doesn't check

Tests 4 (significant participation across multiple activities) and 7 (facts and circumstances) are more involved and less commonly used for STR owners. If you think one of those applies to your situation, a CPA review is the right call.

Not tax advice. This quiz is an educational self-assessment tool based on the IRS material participation tests under Treasury Regulation §1.469-5T. Your actual filing position depends on your specific facts and documentation. A qualified CPA should confirm your material participation before you rely on it on a tax return. Documentation (contemporaneous time logs) is critical to support any test you pass.