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A six-day average stay can move $60,000 of losses onto your W-2. Seven days can't.
Rental losses are passive by default — they can only offset passive income, and the $25,000 allowance dies at $150,000 MAGI. Two legal escapes move those losses onto your regular income. The STR loophole: if your average guest stay is 7 days or less, the property isn't a "rental activity" at all — you only need material participation (100+ hours and more than anyone else, or 500+ hours). REPS: 750+ hours in real estate work AND more than half of all your working hours. Either path makes cost-segregation losses deductible against a W-2 salary. This calculator runs the whole decision tree and shows what deducts now versus what suspends.
W-2 earners with an Airbnb use it before counting on the paper loss: a ≤7-day average stay plus 100 honest hours moves the whole cost-seg deduction onto their salary — but the cleaner's hours count, and one day of average stay is the line between deductible and suspended.
Treas. Reg. §1.469-1T(e)(3)(ii): if the average customer stay is 7 days or less (or 30 with substantial services like daily cleaning), the activity isn't a "rental" — so the rental-is-always-passive rule never applies. You still need material participation: the practical tests are 500+ hours, or 100+ hours and more than any other individual. The cleaner is the classic failure — if your cleaner logs 200 hours and you log 150, you fail the 100-hour test. Average stay = total guest-nights ÷ number of stays, computed per year.
The two-part test: more than 750 hours in real property trades AND more hours than ALL your other work combined. A 2,000-hour W-2 job means you need 2,001+ real estate hours — 40 hours a week — on top of the job. That's why the classic play is the spouse: one spouse without a W-2 (or part-time) qualifies for REPS while the other's salary gets sheltered. Married filing jointly combines the benefit. The 750 hours alone isn't enough — the half-time prong is what kills it for most W-2 holders.
They carry forward indefinitely and deduct against future passive income — and release IN FULL against any income in the year you sell the property in a fully taxable disposition. So suspended losses aren't lost, just timed. Two audit notes: document hours contemporaneously (a log reconstructed before an audit loses; STR platform calendars plus a time-tracking app win), and the grouping election for REPS must be filed with your return — you can't decide to group properties retroactively.