Tax Guide

STR vs LTR: Tax Differences Every Landlord Should Know

Short-term rentals and long-term rentals are both “rental properties,” but the IRS treats them very differently. The average rental period changes how your income is classified, which deductions you can take, whether you owe self-employment tax, and how depreciation losses work. If you own both STRs and LTRs, or are considering converting one to the other, understanding these differences is critical.

Quick comparison

DimensionShort-Term RentalLong-Term Rental
Average rental period≤ 7 days typical12 months typical
Income classificationNon-passive (if avg stay ≤ 7 days + material participation)Passive by default
Tax formSchedule E or Schedule C (if substantial services)Schedule E
Self-employment taxPossibly (if substantial services provided)Generally no
REPS needed for loss deduction?Not always (7-day exception may apply)Yes, for non-passive treatment
Operational deductionsHigh (cleaning, supplies, platform fees, amenities)Lower (repairs, management fees)
Depreciation27.5 years (building) + furnishings (5–7 years)27.5 years (building)
Personal use rules14-day / 10% rule applies frequentlyRarely applicable
Occupancy taxUsually required (varies by jurisdiction)Generally not applicable
Management time per unitHigh (200–500+ hrs/yr)Low (50–150 hrs/yr)

Average rental period: the line that changes everything

Under IRC Section 469(j)(8) and the related regulations, the average rental period determines whether your property is treated as a “rental activity” under the passive activity rules. If the average period of customer use is 7 days or less, the activity is not a rental activity for passive activity purposes, even though it is still reported on Schedule E in most cases.

This distinction is enormous. Long-term rentals are almost always passive activities, meaning losses can only offset passive income (unless you have REPS). Short-term rentals with an average stay of 7 days or less can generate non-passive losses without REPS if you materially participate.

The average period is calculated by dividing total rental days by total rental periods (bookings). A property with 200 rental nights across 60 bookings has an average period of 3.3 days, well under the 7-day threshold.

Tracking work hours

Passive vs active income classification

Long-term rentals

LTR income is passive by default under IRC 469. Losses can only offset passive income (other rental income, K-1 passive income, etc.). The $25,000 special allowance lets some taxpayers deduct up to $25,000 in rental losses against active income, but it phases out completely at $150,000 AGI. Above that threshold, you need REPS to get non-passive treatment.

Short-term rentals

STRs with an average stay of 7 days or less are not “rental activities” under the passive activity rules. If you materially participate (typically the 500-hour or 100-hour test), the income is non-passive. This means STR losses can offset your W-2 income without REPS, a significant advantage over LTRs.

However, if you do not materially participate, STR income is still passive and the losses are trapped. Material participation is easier to demonstrate for STRs because they require so much hands-on work, but you still need to document it.

Self-employment tax: STRs may owe it, LTRs generally do not

Long-term rental income reported on Schedule E is not subject to self-employment tax (15.3%). This is one of the significant benefits of rental real estate: the income is exempt from FICA taxes.

Short-term rentals are different. If you provide “ substantial services” to guests (beyond just providing the space), the income may be reclassified as a trade or business and subject to self-employment tax. Substantial services include daily cleaning, meal service, guided tours, concierge services, and similar hotel-like amenities.

Simply providing linens, a stocked kitchen, and a guidebook is generally not considered “substantial services.” But the line is blurry, and the IRS has been scrutinizing STR operators more closely. If your operation looks more like a hotel than a rental, consult a CPA about self-employment tax exposure.

For more on this, see our STR tax deductions guide.

Deduction differences

Both STRs and LTRs deduct the basics: mortgage interest, property taxes, insurance, depreciation, repairs, and professional fees. But the operational cost profiles are very different:

STR-heavy deductions

  • Cleaning between guests (50+ turnovers per year)
  • Guest supplies and amenities
  • Platform fees (Airbnb, VRBO, Booking.com)
  • Dynamic pricing software
  • Professional photography and staging
  • Smart home technology (locks, cameras, thermostats)
  • Furnishings and decor (depreciable assets)
  • Landlord-paid utilities (common in STRs)
  • Occupancy and lodging taxes

LTR-heavy deductions

  • Property management company fees (8–12% of rent)
  • Tenant screening and background check costs
  • Legal fees for lease preparation and evictions
  • Long-term maintenance contracts (landscaping, pest control)
  • Capital improvements (roof, HVAC, windows) depreciated over time

The net effect is that STRs typically have higher gross revenue per unit but also higher operating expenses. LTRs have lower gross revenue but much lower operating costs, making them simpler to manage and more predictable financially.

Depreciation treatment

Both STRs and LTRs depreciate the building over 27.5 years. But STRs typically have significantly more depreciable personal property: furniture, appliances, electronics, kitchenware, linens, and decor. These items are depreciated over 5–7 years using the accelerated (MACRS) method, which front-loads the deduction.

A cost segregation study tends to identify a higher percentage of reclassifiable assets in furnished STRs than in unfurnished LTRs. This means STR owners often get larger first-year depreciation deductions when they pursue cost segregation.

For LTR owners, depreciation is still the single largest tax benefit. The 27.5-year straight-line deduction creates a “paper loss” even on properties with positive cash flow, which can be used to offset income if you have REPS status. See our Schedule E guide for details on reporting depreciation.

REPS implications for each type

For LTR owners

REPS is essential for LTR owners who want to use rental losses against active income. Without it, losses are passive and trapped (beyond the $25,000 special allowance, which phases out at $150K AGI). REPS converts LTR losses to non-passive, giving you the full benefit of depreciation and cost segregation.

For STR owners

STR owners may not need REPS at all. If the average stay is 7 days or less and you materially participate, the activity is already non-passive. However, REPS can still be valuable if you also own LTRs in the same portfolio, since it enables non-passive treatment for those properties too.

Additionally, some STR operators with average stays between 7 and 30 days fall into a gray area. REPS provides a clear path to non-passive treatment regardless of the average rental period.

For the full qualification requirements, see our REPS guide. For married couples, see REPS for married couples.

Which is “better” for taxes?

The honest answer: it depends on your situation. Here are the tradeoffs:

  • STRs are better if you want non-passive loss treatment without REPS, have higher income to offset, are willing to put in the operational work, and want to take advantage of the 7-day exception
  • LTRs are better if you want simplicity, lower operational burden, no risk of self-employment tax, and can qualify for REPS (or are okay with passive loss treatment)
  • A mixed portfolio can be optimal: STR income generates non-passive income, LTR depreciation generates non-passive losses (with REPS), and the two offset each other, or offset your W-2 income

The tax structure should follow your investment strategy, not drive it. Choose properties that make financial sense, then optimize the tax treatment. A CPA who specializes in real estate can model the tax impact of different portfolio compositions.

How RE:Writeoff handles both types

RE:Writeoff tracks property management activities regardless of whether your property is an STR or LTR. Each property in your portfolio is tagged by type, and activities are classified using IRS-recognized categories that apply to both rental types.

For STR operators, RE:Writeoff captures the high-volume activities that make short-term rental management so time-intensive: guest communications, turnover coordination, cleaning team emails, booking confirmations, and review management. For LTR owners, it captures maintenance requests, tenant communications, lease-related emails, and vendor coordination.

Your year-end reports show total hours by property, by type, and by activity category, giving your CPA exactly what they need to determine the right tax treatment for each property in your portfolio.

RE:Writeoff is a documentation tool and does not provide tax advice. Consult a qualified tax professional for advice specific to your situation.

References

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