IRS letter on your desk?We take over contact with the IRS.IRS Audit RepresentationExams, appeals, collections, penalty reliefBusiness TaxPlanning and compliance for mid-size companiesIndividual & Family TaxHigh-net-worth, multi-state and cross-borderOffshore Disclosure & SDOPFBAR, PFIC and Streamlined filingsTaxpayer Rights in an IRS AuditYour rights, step by stepAudit & AssuranceAudits, reviews, 401(k) plan auditsGovernment Contracting8(a), DCAA, incurred cost submissionsMergers & AcquisitionsDue diligence, QoE, valuations
Government contractorsDCAA, rates and incurred costGovernment Contractors & TechnologyIT, professional services, federal primes and subsReal Estate & ConstructionOwners, developers, contractorsMedical Practices & ClinicsPhysicians, urgent care, clinics, dentalHealthcare StaffingTravel nurse, allied and per diem agenciesRestaurants, Retail & HospitalityFranchises, multi-unit, hotels, e-commerceStaffing & IT CompaniesIT staffing, software, multi-state payroll
New YorkMidtown Manhattan officeWashington, DCOffice · 20 F St NWNew YorkOffice · Avenue of the AmericasNorthern VirginiaHeadquarters · AshburnTexasDallas, Houston, Austin, San AntonioCaliforniaLos Angeles, Bay Area, San DiegoRaleigh, NCResearch Triangle and CharlotteChicago, ILChicago, Naperville, SchaumburgBoston, MABoston, Cambridge, WalthamSeattle & Redmond, WASeattle, Redmond, Bellevue
Tax strategy · Short-term rentals · IRC § 469
When guests stay seven days or less on average, a rental is not treated as a rental activity under the passive loss rules. If you materially participate, losses created by cost segregation and 100% bonus depreciation can offset wages and business income without real estate professional status.
Serving United States, Virginia, Washington, DC, Maryland.
What we handle
Under Treas. Reg. section 1.469-1T(e)(3)(ii)(A), an activity is not a rental activity if the average period of customer use is seven days or less (or 30 days or less when significant personal services are provided). The property is then treated like a business: its losses are passive only if you do not materially participate. The common tests are 500 hours, doing substantially all the work, or more than 100 hours and more than anyone else, including cleaners and managers.
Paired with a cost segregation study and 100% bonus depreciation, the first-year loss can be large. Personal use matters too: if you use the property for more than 14 days or 10% of rental days, section 280A limits deductions. Virginia localities also impose transient occupancy taxes and registration requirements.
Speak with an advisorWhere we help
Owners of a vacation rental with short stays could not show material participation, largely because others managed the property, so their losses were passive and disallowed.
Being on call does not count; only actual work counts toward material participation hours.
The seven-day average-stay rule that takes short-term rentals out of the rental activity category.
If a manager or cleaner works more hours than you, the 100-hour test fails.
Our approach
Projected stays, personal use and hours for the year.
Hour logs, booking data and contracts with cleaners or managers.
Cost segregation and bonus depreciation in the year placed in service.
Support average stay and participation if examined.
Questions
If your question isn't here, call (703) 880-8412 and you'll reach a person.
No. If the average stay is seven days or less, the property is not a rental activity, so material participation alone can make the loss nonpassive.
It can. A full-service manager makes it hard to meet the 100-hour test, because you must work more hours than any other individual, and harder to show substantially all participation.
Total days rented divided by the number of separate rentals for the year.
Yes if you materially participate and the loss is not limited by at-risk rules or the excess business loss limit.
Personal use over 14 days or 10% of rental days turns the property into a residence under section 280A and limits deductions.
Virginia generally does not allow bonus depreciation, and localities impose occupancy and sometimes license taxes on short-term rentals.
Latest updates
Authorized representatives can now make balance-due, amended return, extension, proposed assessment and federal tax deposit payments for business clients online. Appropriate authorization for the client and tax matter is required.
Source: IRS (IR-2026-134)
For 2027 the joint-return standard deduction rises to $33,200, the estate tax basic exclusion to $15,480,000, the annual gift exclusion to $20,000 and the Section 179 expensing limit to $2,640,000. Our advisors recommend revisiting year-end gifting and equipment purchase plans with these figures in mind.
Source: IRS (IR-2026-133)
All 6,576 nominated census tracts, including 2,594 rural tracts eligible for enhanced benefits, become Opportunity Zones on January 1, 2027 for ten years. Investors with capital gains should review the new map before committing funds.
Source: IRS (IR-2026-132)
Related
Tax strategies supported by the Internal Revenue Code and Tax Court decisions.
Learn moreHeadquartersAddress, local tax issues and the full range of services in Northern Virginia.
Learn moreHow 100% bonus depreciation under IRC section 168(k) and cost segregation studies work in 2026 for commercial buildings, rentals, hotels and medical offices, with the Tax Court cases that set the limits.
Learn moreTax strategyThe research credit under IRC section 41 and immediate R&E expensing under section 174A: who qualifies, the four-part test, the $500,000 payroll offset, documentation, and the Tax Court cases that decide R&D claims.
Learn moreTax strategyHow real estate professional status under IRC section 469(c)(7) lets rental losses offset other income: the 750-hour and more-than-half tests, material participation, the aggregation election, records, and Tax Court cases.
Learn moreTax strategyTax rules for owning and leasing equipment: section 179 limits for noncorporate lessors, bonus depreciation, the passive activity and self-rental rules, at-risk limits, true lease versus financing, and the Tax Court cases behind them.
Learn moreTax strategyTax strategies for medical and dental practices buying equipment, and for medical device companies: section 179 and bonus depreciation, leasing, the disabled access credit, the R&D credit and section 174A, the repealed device tax and QSBS.
Learn moreTax strategyHow much salary an S corporation owner must take: the reasonable compensation rule, Rev.
Learn moreTax strategyThe Augusta rule under IRC section 280A(g), which excludes rent for 14 days or less, and paying your children through the family business under IRC 3121(b)(3)(A): requirements, documentation and the Tax Court case that tested them.
Learn moreStart a conversation
Tell us what you're facing. A senior advisor will reply within one business day with a clear next step.