In context
The STR ≤7-day test is on average customer use — total days of all customer rentals divided by the number of rentals. A property with 50 stays averaging 5 nights qualifies. A property with 12 stays averaging 14 nights does not.
The mechanism: rental activities under §469(c)(2) are passive regardless of participation. STR ≤7-day average is excluded from “rental activity” by Reg. §1.469-1T(e)(3) — it’s treated as a trade or business. Trade-or-business losses are non-passive when the taxpayer materially participates (any of the seven §1.469-5T(a) tests).
For STR operators, test 3 (>100 hours and more than any other individual) is the typical qualification path — personally managing bookings, communications, cleaning oversight, and maintenance with no third-party manager exceeding the owner’s time.
The combination of:
- STR ≤7-day average (bypasses §469 passive rules)
- Material participation (under any single test)
- Cost segregation generating large year-1 paper losses
is the “STR loophole” pattern. Losses offset W-2 and active business income directly without REPS qualification.
The 7-day test must be tracked on actual stays, not nominal listing periods. A booking marketed as “weekend” but extending to 9 nights counts as 9 nights, not 2. A single long booking can wreck the average for the year.