The IRS has clearly defined the guidelines for determining if your rental property is a Short-term rental (STR) or a Long-term rental (LTR) property. This designation will have a signifiant impact on the tax treatment of your rental income and expenses so it's important that you understand the requirements and select the correct designation for each rental property in your portfolio. Please see guidelines below:
Short-term rental (STR)
As defined by Treasury Regulation Sec. 1.469-1T(e)(3)(ii)(A)
- The average period of customer use is 7 days or less
- The average period of customer use is 30 days or less. (Confusing we know, this means that not only does the customer stay for 7 days or less on avg. they also don't come back multiple times during the year for separate trips and these stays add up to > 30 days -> Trip one: 7 days, Trip two: 7 days, etc.)
- Personal use of the property of 15 days or more OR more than 10% of the total rental days will cause the property to become a residence. Exceeding these thresholds will cause this property to be treated as a primary residence. You won't be able to deduct any losses generated by the property, though the losses can still carry forward. You also must allocate all expenses based on the proportion of time spent, allocating the expenses between your personal deductions and the rental property profit and loss. Learn more
Long-term rental (LTR)
- The average period of customer is > 7 days
- The average period of customer use is > 30 days
- Personal use of the property of 15 days or more OR more than 10% of the total rental days disqualifies the property from being considered a Short-term rental (STR) but a prorated amount of time may still qualify to be considered a long-term rental.
Speak to a tax professional to get further clarification or learn more directly from IRS guidelines.
This article is provided for illustrative purposes only; it does not provide personalized tax, legal, financial, or other professional advice. Your situation may be different; consult a professional for information concerning your individual tax, financial, or legal situation before taking any action.
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