Material participation hours for short-term rentals: the 100-hour test
Test 3 of Treas. Reg. §1.469-5T(a): you materially participate if you put in more than 100 hours in the year and not less than any other individual, owner or not. On a short-term rental the other individual is usually the cleaner: 40 turnovers of 3 hours are 120 hours, so 110 owner hours are not enough. Test 1, more than 500 hours, compares with no one.
The two hour tests
- Test 1: more than 500 hours in the year (§1.469-5T(a)(1)).
- Test 3: more than 100 hours, and not less than the participation of any other individual, including people who do not own the property (§1.469-5T(a)(3)). Equal hours pass.
Sample data: owner vs cleaner
One cleaner doing every turnover; cleaner hours = turnovers x hours per turnover (computed by the hours check's code).
| Turnovers | Hours per turnover | Cleaner hours | Your hours | Test 3 | Test 1 |
|---|---|---|---|---|---|
| 40 | 3 | 120 | 110 | Not met | Not met |
| 40 | 3 | 120 | 99 | Not met | Not met |
| 40 | 2.5 | 100 | 110 | Met | Not met |
| 60 | 2.5 | 150 | 140 | Not met | Not met |
| 60 | 2 | 120 | 130 | Met | Not met |
| 120 | 3 | 360 | 350 | Not met | Not met |
| 120 | 3 | 360 | 520 | Met | Met |
What counts and how to show it
Work done as an investor (reviewing financial statements, preparing summaries for your own use, monitoring finances in a non-managerial capacity) is not participation unless you are directly involved in day-to-day management or operations.
Participation may be established by any reasonable means; contemporaneous daily time reports or logs are not required if other reasonable means (appointment books, calendars, narrative summaries) establish it.
The seven tests, for reference:
- (1) More than 500 hours during the year
- (2) Your participation is substantially all of the participation of all individuals
- (3) More than 100 hours and not less than any other individual
- (4) Significant participation activities adding up to more than 500 hours
- (5) Material participation in any 5 of the 10 preceding years
- (6) Personal service activity: material participation in any 3 preceding years
- (7) Regular, continuous and substantial participation on all the facts and circumstances
Check your own numbers with the hours check: it takes the turnovers from your booking export, or adds up an hours log.
Frequently asked questions
- What is the short-term rental loophole 100-hour rule?
- More than 100 hours of your own participation in the year and not less than anyone else's (§1.469-5T(a)(3)). With the 7-day average stay test it is the usual way hosts show material participation.
- Does the 100-hour rule compare me with my cleaning company?
- With each individual: the test says any other individual, including non-owners. If one cleaner does all the turnovers, compare with that person's hours; if three share them, with the busiest of the three.
- Can a W-2 employee meet the 100-hour test?
- The test counts hours on the activity, not your job. What matters is whether your hours on that property are more than 100 and at least the busiest other person's.
- Do my spouse's hours count?
- For a married individual, any participation by the spouse in the activity during the year counts as the individual's participation, whether or not the spouse owns an interest and whether or not they file jointly.
- What if I fail both hour tests?
- Tests 1 and 3 are two of seven. The others (substantially all of the participation, significant participation activities, 5 of the last 10 years, personal service activities, facts and circumstances) are for your CPA; the tool does not compute them.
More guides
- Short-term rental loophole: the 7-day average stay test
Why an average guest stay of 7 days or less takes a rental out of the rental-activity rule, how the average is counted, and what it does not decide. Worked sample.
- How to calculate the average period of customer use (with examples)
Days of all customer-use periods divided by their number: which stays count for the year, back-to-back bookings, nights or days, with a table of stay mixes.
- The 14-day rule and personal use days on a rental (§280A)
When personal use makes a rental a residence (more than 14 days or 10% of rental days), the rented-under-15-days rule and the expense split, with a table.
Last updated 2026-09-30. Arithmetic under Treas. Reg. §1.469-1T(e)(3), §1.469-5T and IRC §280A applied to the stays you enter. Not tax advice; confirm the treatment with your CPA. Not affiliated with Airbnb or Vrbo.