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Park City Short Term Rental (STR) Tax Loophole
Introduction to Park City STR Loophole
If you own, or are considering buying, a short-term rental in Park City, you've probably heard other investors mention a "loophole" that lets STR losses offset W-2 income. It's real, it's legal, and it can save you thousands. Here's how it actually works, what it takes to qualify, and what's specific to owning in Park City.
This page is general information, not tax or legal advice. Every situation is different — talk to a CPA about your specific opportunity.
What is the STR Loophole?
Under IRC Section 469, rental real estate is normally treated as a passive activity meaning any losses can only offset other passive income, not your salary or business income. Short-term rentals get a specific exception.
If a property's average guest stay is 7 days or less, it isn't classified as a "rental activity" under the tax code at all. Once that's true, and the owner materially participates in running it, the activity can be treated as nonpassive which means losses from the property can offset W-2 income, not just other passive gains.
This is different from qualifying as a Real Estate Professional (REPS), which requires 750+ hours a year in real estate as your primary profession — out of reach for most owners with a full-time job.
The STR loophole doesn't require REPS. It just requires:
- Average guest stay of 7 days or less across the property's bookings.
- Material participation by the owner that meets one of several IRS tests, most commonly 100+ hours of personal involvement and more than anyone else involved with the property.
How Much Can I Save?
In addition to offsetting W-2 income from losses, you can also take bonus depreciation up to 100% in the first year for qualifying property placed in service after January 19, 2025.
Paired with a cost segregation study — which breaks a property's purchase price into components with shorter depreciation schedules — can turn a property purchase into a meaningful first-year deduction (potentially hundreds of thousands of dollars) instead of losses trickling in over a standard 27.5-year schedule.
Why Full Service Management Fails You
Material participation has to be the owner's hours — not a manager's. A fully hands-off, all-inclusive management likely will leave you without enough qualifying hours. If someone else is making every pricing call, handling every guest message, and running every turnover without you touching any of it, there may simply not be enough left for you to count toward the IRS threshold.
This is part of why we structure our management as tiers instead of one all-inclusive package. A lighter tier leaves more of the day-to-day pricing decisions, guest communication, vendor approvals in your hands, which is where qualifying hours actually come from.
Platinum, our most hands-off tier, is a great fit for owners who aren't pursuing this strategy at all; if you are, staying more involved at a Bronze or Silver tier is worth considering specifically because it keeps more of the participation with you.
While we cannot guarantee this will work for you, what our tiered structure can do is avoid boxing you out of the strategy by default. Staying at a level where you're still making the calls gives you a real shot at qualifying, instead of a fully hands-off setup that makes it nearly impossible.
