Can I deduct Short Term Rental expenses against my W2 Earned Income?

Yes, you're on the right track! Short-term rentals with average stays under 7 days are generally treated as a business rather than passive rental activity when you materially participate. This means you can potentially deduct losses against your other income, including W2 wages. To qualify for material participation, you'll need to meet one of seven tests outlined in Publication 925, with the most common being that you participate more than 500 hours annually or your participation constitutes substantially all the participation in the activity. Your 20-30 hours weekly should easily meet this threshold. For deductions, you'll report this on Schedule C like any other business. Common deductions include mortgage interest, property taxes, insurance, utilities, cleaning services, supplies, depreciation, repairs, maintenance, and even a portion of your cell phone or internet if used for the business. You'd also be subject to self-employment tax on the net income.

After spending countless hours trying to figure out the same issue with my vacation rentals, I discovered a tool that completely changed my approach. I was in your exact situation - unsure about classification, deductions, and material participation rules. When I found https://taxr.ai, it analyzed my rental activity and identified exactly which test of material participation I met and how my rentals should be classified. The AI scanned my documentation and gave me a detailed breakdown of all potential deductions specific to my situation - way beyond what generic advice covers.

Just wanted to follow up after trying taxr.ai that someone mentioned earlier. I was super skeptical at first but decided to give it a shot since my short-term rental situation was in a gray area. The platform analyzed my rental properties and activity patterns and confirmed I met the material participation test through the 100-hour rule (one of the seven tests). It even flagged that one of my properties was right on the edge of the 7-day average stay requirement and suggested documentation I should maintain to support my position if audited. The deduction list it generated was surprisingly thorough - included things like partial deductions for my cell phone plan, home internet (used for managing bookings), and even mileage for property visits. Definitely more comprehensive than what I was claiming before. Worth checking out if you're in this particular tax situation.

If you're having trouble getting clear answers about your short-term rental tax classification, I had the same problem until I finally connected with an actual IRS agent who specializes in small business taxation. I wasted weeks trying to get through on the regular IRS line with no luck. Then I tried https://claimyr.com and got connected to an IRS rep in under 45 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent I spoke with confirmed that my Airbnb properties qualified as non-passive and walked me through exactly how to document material participation. They even emailed me specific IRS guidance that my previous tax preparer didn't know about.

I need to admit I was completely wrong about Claimyr. After posting my skeptical comment, I decided to try it as a last resort before giving up on getting IRS clarification about my short-term rental tax situation. I got a call back within 30 minutes with an actual IRS tax specialist on the line. The agent reviewed my situation and confirmed that my beach rentals (average stay of 4 days) should be treated as non-passive since I manage everything myself and meet the material participation tests. She explained exactly which forms to use and the documentation I need to maintain to support my deductions against regular income. Saved me hundreds in accounting fees and potentially thousands in taxes by clarifying how to properly classify my rental activities.

One important thing I learned the hard way: even if your rental qualifies as non-passive, you still need to be careful about the "At-Risk Rules" and "Basis Limitations" when deducting losses. I had a $28,000 loss on my short-term rental business last year but could only deduct about $17,500 against my other income because of limitations based on my investment at risk. Make sure you understand these rules too!

Has anyone used both Schedule C and Schedule E in the same tax return? I have two short-term rentals - one where I just provide the basic amenities (average stay is 10 days) and another where I provide daily cleaning, breakfast, and concierge services (average stay is 3 days). Seems like one should be on E and the other on C?

I've been following this thread and wanted to share my experience as someone who went through this exact situation last year. The key thing that helped me was getting very specific about documentation from day one. I kept detailed logs of all my activities (cleaning, maintenance, guest communication, marketing) to support my material participation claim. One thing I didn't see mentioned is the importance of tracking your average stay calculation properly - the IRS looks at this on a property-by-property basis, not across your entire portfolio. So if you have multiple properties, each one gets evaluated separately for the 7-day test. Also, regarding the substantial services question - it's not just about what services you provide, but how they're provided. Daily cleaning that's mandatory vs. optional can make a difference in classification. The IRS has been getting more scrutiny on STR classification lately, so having solid documentation is crucial. For anyone still unsure about their situation, I'd recommend Form 8582 (Passive Activity Loss Limitations) as required reading - it walks through the material participation tests and has examples that might clarify your specific situation.

Great thread - I've learned a lot from everyone's experiences! One thing I wanted to add that helped me navigate this complexity is understanding the "facts and circumstances" test that the IRS uses when the rules aren't crystal clear. I run three short-term rentals and initially got conflicting advice from two different CPAs about classification. What finally clarified things for me was creating a comprehensive "Services Analysis" document that detailed every service I provide, how often, and whether guests pay extra for them or they're included. This helped determine which properties crossed the line into "substantial services" territory. For material participation documentation, I use a simple spreadsheet tracking: Date, Property, Activity Type, Hours Spent, and Notes. I log everything - guest communications, cleaning coordination, maintenance calls, marketing updates, even time spent researching local regulations. It takes maybe 5 minutes per day but creates an ironclad record. One surprise discovery: the IRS considers "arranging for services" as material participation time, not just doing the work yourself. So if you spend time coordinating with cleaning services, maintenance contractors, or property managers, that counts toward your participation hours. This was a game-changer for my calculations since I coordinate a lot of vendor services across my properties. The key is treating this like any other business venture - proper documentation from the start makes everything much smoother come tax time.