What counts as material participation for a short-term rental, and how many hours do you need?
For a short-term rental, most owners meet material participation by logging more than 100 hours and more hours than any other individual, or by logging more than 500 hours. Hours from you and your spouse are combined.
The tests investors use most
| Test | What you need |
|---|---|
| 500 hour test | More than 500 hours in the activity during the year |
| Substantially all test | You do substantially all the work of everyone involved |
| 100 hour test | More than 100 hours and no less than any other individual, including cleaners and managers |
The IRS lists seven tests in total. The three above cover almost every STR owner.
What counts as participation
- Managing listings, pricing, and guest messaging
- Coordinating repairs and cleaners
- Purchasing and setting up supplies and furnishings
- Travel to the property for management purposes
- Bookkeeping and review of the property's financials
Investor-type activity, like reading about real estate or reviewing statements you did not prepare, generally does not count.
How to make your hours defensible
- Log as you go. Use a shared spreadsheet or calendar with date, task, and time.
- Track other people too. The 100 hour test compares you to everyone else, so keep a rough count of cleaner and manager hours.
- Be specific. "Reviewed pricing and updated minimum stays, 1.5 hours" holds up better than "worked on STR."
- Keep supporting evidence. Messages, invoices, and trip receipts back up the log.
FAQ
Do hours spent furnishing and setting up the property count?
Generally yes, if you did the work or managed it yourself. Keep records that show your role.
What if a cleaning crew logs more hours than I do?
Then the 100 hour test may fail, and you would need to reach 500 hours or meet another test.
Can I combine my hours with my spouse's?
Yes. Both spouses' participation counts toward the test for the activity.
Sources
- Treas. Reg. 1.469-5T(a), the seven material participation tests
- Treas. Reg. 1.469-5T(f)(3), spouse participation
- IRS Publication 925, Passive Activity and At-Risk Rules
This site shares one investor's experience and general education. We are not tax, legal, or financial professionals and this content has not been reviewed by one. Tax rules change and depend on your facts. Talk to a qualified professional before acting on anything here.