Short-term vs long-term rentals: two different tax worlds
The short answer
The same house produces very different tax results depending on how you rent it. Long-term rentals: passive by default, 27.5-year depreciation, no self-employment tax, simple. Short-term rentals: potentially non-passive losses (the STR loophole), often 39-year building depreciation, possible self-employment tax if you provide hotel-like services, plus occupancy taxes and permits. Neither is "better" — they fit different investors, and the choice is worth modeling before you list.
The comparison that matters
- Loss treatment: LTR losses are passive unless you have REPS; STR losses can be non-passive with material participation alone.
- Depreciation life: LTR buildings at 27.5 years; transient-use STRs often at 39 — making cost segregation proportionally more valuable for STRs.
- Self-employment tax: LTR rents are exempt; STR income joins Schedule C and SE tax only if you add substantial services.
- Compliance load: STRs add occupancy taxes, local permits, and (in cities like Los Angeles) registration rules that belong in the underwriting.
- Exit and conversion: both can 1031; both face recapture; switching a property between modes changes its tax profile mid-life.
A worked example
Same $700,000 property, two strategies, a high-W-2 owner, year one with a cost seg study:
Year-one after-tax picture (illustrative)
Illustrative only — in year five the comparison can invert as depreciation thins and management fatigue arrives. Model both.
Common mistakes
- Buying an STR, hiring full management, and losing the loophole that justified the price
- Depreciating a transient-use property over 27.5 years
- Adding breakfast and daily cleaning without pricing in self-employment tax
- Ignoring city registration and occupancy-tax rules until the penalty letter
Frequently asked questions
Which pays less tax — short-term or long-term rental?
Neither, categorically. Long-term rentals are simpler and avoid self-employment tax; short-term rentals can unlock non-passive losses and bigger depreciation plays but carry more compliance. The answer is your income, hours, and market — it's a modeling question.
Why would my STR depreciate over 39 years instead of 27.5?
Property used on a transient basis can be classified as nonresidential for depreciation, moving the building from 27.5-year to 39-year life. Cost segregation matters even more in that case.
When does Airbnb income owe self-employment tax?
When you provide substantial services — hotel-like offerings such as meals, daily housekeeping during stays, or concierge services. Standard cleaning between guests generally doesn't cross the line.
What about the 14-day rule?
Rent your home 14 days or fewer in a year and the income is entirely tax-free and unreported — the same §280A(g) rule behind the Augusta strategy. Cross 14 days and normal rental taxation applies.
Deciding how to rent a property?
We'll model both structures on your actual income and hours — deduction value, SE-tax exposure, and compliance load — so the listing strategy is a decision, not a default.
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