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STR Loophole Eligibility Checker: Do You Qualify?

By Zawwad Ul Sami, Founder, WeCostSegPublished: 2026-05-14Last updated: 2026-05-14

The short-term rental tax loophole under Treas. Reg. 1.469-1T(e)(3)(ii) treats rental activity as nonpassive when average customer use is seven days or less and the owner materially participates. This tool checks all four criteria.

STR Loophole Eligibility Checker

Reg. 1.469-1T(e)(3)(ii) plus the seven material-participation tests in Temp. Reg. 1.469-5T. All four criteria must pass for STR losses to be nonpassive.

1. Average stay ≤ 7 dayspass
2. Ownership during participationpass
3. Material participation (Test 3: 100+ hours and more than anyone else)pass
4. Contemporaneous documentationpass
STR LOOPHOLE QUALIFIED

The four criteria

  1. Average customer use period of seven days or less.
  2. Material participation under one of the seven Reg. 1.469-5T tests.
  3. Ownership during the year of participation.
  4. Contemporaneous hour documentation.

Common audit failures

  • Property manager hours that consume most of the work, eliminating Test 3.
  • Average stay drifts above seven nights due to long off-season bookings.
  • Investor activities (financing, planning, reading) excluded under 1.469-5T(f)(2).
  • No contemporaneous log, only year-end reconstruction.
About the author

Zawwad Ul Sami, Founder

Zawwad Ul Sami is the founder of WeCostSeg, a founder-led cost segregation firm serving real estate investors across the US. He focuses on strategy, pricing, and the firm's overall direction.