Four questions that decide whether the deduction is usable
A study creates the deduction. These rules decide when it reduces your tax.
| Question | What it means | Authority |
|---|---|---|
| 1. Average stay of 7 days or less? | Then the activity is generally not a "rental activity" under the passive-loss rules. Average stays of 30 days or less can also qualify if you provide significant personal services. | Temp. Reg. §1.469-1T(e)(3)(ii)(A)-(B) |
| 2. Did you materially participate? | One of seven tests, for example 500 hours in the year, or more than 100 hours and not less than anyone else, including cleaners and managers. You keep the log; your CPA applies the test. | Temp. Reg. §1.469-5T(a) |
| 3. Is the loss within the excess business loss limit? | Business losses above $256,000 ($512,000 married filing jointly) for 2026 do not offset other income that year; the excess becomes a net operating loss. | §461(l); Rev. Proc. 2025-32 |
| 4. How long will you hold it? | Gain on a sale is taxed as ordinary income up to the depreciation taken on 5-, 7- and 15-year property. A short hold gives part of the benefit back. | §1245 |
The 39-year caveat
Residential rental property, the 27.5-year class, requires that at least 80% of gross rents come from dwelling units. A unit in a building used more than half on a transient basis does not count as a dwelling unit, and a unit is used on a transient basis when its stays are mostly under 30 days. A typical short-term rental therefore generally falls into the 39-year nonresidential class.
That lowers the depreciation on whatever stays in the building and makes the reclassified components matter more. Our calculator switches to 39 years when you pick short-term rental.
Bonus depreciation for a 2026 purchase
A house acquired under a written binding contract after January 19, 2025 gets 100% bonus on the components a study reclassifies. Under an earlier contract the TCJA phase-down applies by the year placed in service: 40% in 2025, 20% in 2026, 0% after 2026. The date on the purchase contract decides it; see the 2026 bonus guide.
Furniture you bought separately is already 5-year property on its own; a study must not count it again inside the building cost.
Short-term rental questions
Is a short-term rental 27.5-year or 39-year property?
Do I need real estate professional status?
What does a study find in a vacation rental?
Can the calculator tell me whether my loss is usable?
Primary sources
What this page relies on, as reviewed October 2, 2026.
- Treas. Reg. §1.469-1T(e)(3), definition of rental activity (Cornell LII)
- 26 U.S.C. §469, passive activity losses (Cornell LII)
- 26 U.S.C. §168, accelerated cost recovery system (Cornell LII)
- Rev. Proc. 2025-32, 2026 inflation adjustments (§179, §461(l))
- 26 U.S.C. §1245, gain from dispositions of depreciable property (Cornell LII)
- Cost Seg Smart, 2026 reclassification benchmarks (vendor-reported)
Tax law, IRS guidance and state conformity change. Confirm the current rules and how they apply to your property with a qualified professional before acting.