Short-Term Rental Loophole (STL) Bonus Depreciation 2027 Calculator
Calculate the short-term rental (STR) loophole tax savings: average stay under 7 days + 100 hours material participation lets you offset W-2 income with cost segregation losses — no REPS required.
| Average Stay Test (≤7 days) | — |
| Material Participation (≥100 hrs) | — |
| Short-Life Asset Pool | — |
| Bonus Depreciation Year 1 | — |
| NOI Less Depreciation | — |
| Net Loss Against W-2 | — |
| Federal+State Tax Savings | — |
| Effective W-2 Reduction | — |
The STR loophole exploits §1.469-1T(e)(3)(ii)(A): rentals with average customer use of 7 days or fewer are NOT passive activities under §469. Combined with cost segregation and 2027 bonus depreciation (40%), STR investors can wipe out W-2 income without qualifying as a Real Estate Professional. Source: Treas. Reg. §1.469-1T(e)(3)(ii), TCJA §168(k) phase-down.
How the STR Loophole Works in 2027
Under Treas. Reg. §1.469-1T(e)(3)(ii)(A), rentals with average customer use of 7 days or less are not 'rental activities' under §469. Combined with material participation (100+ hours and more than anyone else, OR 500+ hours), the activity is non-passive — losses offset W-2 income. This bypasses the 750-hour and 50% Real Estate Professional tests. Most W-2 doctors, engineers, and executives use STL specifically to avoid the REPS hurdle.
Combining STL With Cost Segregation
A typical $700k Airbnb with 28% short-life allocation produces $196k in short-life assets. At 40% bonus depreciation (2027), Year 1 deduction = $78k bonus + $24k remainder MACRS + $20k long-life = ~$122k. If NOI is $35k, you have an $87k loss — saves $32k (37% bracket). The strategy is most powerful in Year 1; gets harder in Year 2+ as accelerated deductions phase down.
Material Participation Tests for STR
Seven tests, you must pass one: (1) 500+ hours/year, (2) substantially all work in the activity, (3) 100+ hours AND no one else exceeds yours, (4) all 'significant participation' activities exceed 500 hours combined, (5) materially participated 5 of last 10 years, (6) personal service activity, (7) facts and circumstances. Most STR investors use test 3 — 100 hours plus beating the cleaner and property manager.
Last updated May 2026. Sources: Treas. Reg. §1.469-1T(e)(3)(ii), IRC §168(k) Bonus Depreciation.