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The STR 14-Day Tax Rule: Buy, Use, and Sell Implications
14 days or fewer rental = tax-free income (Augusta Rule) but no deductions. STR loophole: personal use <14 days + 500hr material participation = non-passive losses (deductible against ordinary income). OBBBA bonus dep + STR loophole = large first-year write-offs. Sale: non-qualified use (STR years) reduces primary residence exclusion proportionally; depreciation recapture (25%) not sheltered by exclusion. Own Luxury Homes® 12-Point Agent Integrity Audit™ — use classification structured at acquisition.
The STR 14-Day Tax Rule: What It Means When You Buy, How to Use It, and What Changes at Sale
The 14-day tax rule — sometimes called the Augusta Rule or the vacation home rule — is one of the most powerful and most misunderstood provisions in STR tax law. It is not primarily about Airbnb. It is about how the IRS classifies your property: personal residence, rental property, or mixed-use. That classification determines whether rental income is taxable, whether expenses are deductible, whether losses offset ordinary income, and what your capital gains exposure is when you sell. Understanding it before you buy — and structuring your use accordingly — is a transaction-level decision, not just a tax filing decision.
The Three Classification Categories
| Category | Personal Use Days | Rental Days | Tax Treatment | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Personal residence only | All or nearly all | None | No rental income; no rental deductions; primary residence CG exclusion available | ||||||
| 14-day rule (Augusta Rule) | Any amount | ≤14 days per year | Rental income 100% tax-free; no rental deductions allowed; still a personal residence for tax | ||||||
| Mixed-use / vacation home | >14 days AND >10% of rented days | >14 days per year | Income taxable; expenses allocated between personal and rental use; loss deductions limited | ||||||
| Investment rental (STR loophole) | ≤14 days per year (or 10% of rented days) | Primarily rented | Full rental income taxable; full expenses deductible; losses may offset ordinary income with material participation | ||||||
| The "investment rental" category — where personal use stays below 14 days AND below 10% of rental days — is the classification most full-time STR investors want. It unlocks full expense deductibility and, with material participation, non-passive loss treatment. | |||||||||
The Augusta Rule: 14 Days or Fewer of Rental = Tax-Free Income
How It Works
IRC §280A(g): if you rent your home for 14 or fewer days per year, the rental income is completely excluded from gross income — it does not appear on your tax return and is not subject to income tax. You also cannot deduct any rental expenses in this scenario. The property remains a personal residence for all tax purposes.
Who Uses This Strategy
Homeowners in high-demand locations who rent for a few premium nights per year — Augusta National golf week, Super Bowl host cities, PGA Championships, major festivals. A homeowner who rents for 14 nights at $2,500/night collects $35,000 tax-free. This is not an STR investment strategy — it is a primary residence rental optimization.
What It Does NOT Apply To
If you are buying a property specifically to operate as an STR (renting more than 14 days per year), the Augusta Rule does not apply. Your rental income is taxable. Your expenses are deductible. Your loss treatment depends on material participation.
The STR Loophole: Non-Passive Loss Treatment
For STR investors who materially participate in operations, rental losses (including large first-year depreciation losses from the OBBBA bonus dep) can be classified as non-passive — deductible against your ordinary income (W-2, business income, etc.) without the passive activity loss limitations that apply to most rental properties. To qualify:
| Material Participation Test | Requirement | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 500-hour test (most common) | You personally spend 500+ hours per year in STR activity (booking management, guest communication, cleaning coordination, maintenance) | ||||||||
| Substantially all test | Your participation constitutes substantially all participation by all individuals including any manager | ||||||||
| Significant participation test | You participate 100+ hours AND more than any other individual | ||||||||
| The 500-hour test is the standard for most active STR investors. Maintain a detailed activity log. The STR loophole (non-passive loss treatment) is separate from and in addition to the bonus depreciation deduction — both can apply simultaneously. | |||||||||
How the 14-Day Rule Affects the Sale
Primary Residence Exclusion After STR Use
If you convert your primary residence to an STR and later sell, the $250,000/$500,000 capital gains exclusion is reduced proportionally for the years the property was used as an STR (non-qualified use). Example: you lived in a home for 3 years, rented it as an STR for 2 years, then sold. Only 3/5 of the gain qualifies for exclusion. The remaining 2/5 is taxable. This is the "non-qualified use" rule under IRC §121(b)(5).
Depreciation Recapture Always Applies
Regardless of primary residence exclusion, any depreciation taken during the STR period is recaptured at 25% when you sell. If you took 100% bonus depreciation in year one under OBBBA, the full amount is recaptured at sale. The exclusion does not shelter depreciation recapture.
“The 14-day rule question I get most is from buyers who want to use the property personally and also generate STR income. The answer depends entirely on how they want the property classified. If they want the STR loophole — non-passive losses, full expense deductibility — they need to keep personal use below 14 days. If they mostly want to use it themselves and rent a few nights, the Augusta Rule keeps that income tax-free but forfeits the deductions. You can’t have both. That’s a decision that should be made before purchase, not figured out at tax time.”
— Ryan Brown, Principal Broker & CEO, Own Luxury Homes®
What is the 14-day STR tax rule?
IRC §280A(g): if you rent your home for 14 or fewer days per year, the rental income is completely excluded from gross income. You pay no tax on it and take no rental deductions. The property remains a personal residence. Renting more than 14 days makes income taxable and expenses deductible.
What is the STR tax loophole?
The ability to treat STR rental losses as non-passive (deductible against ordinary income) when you materially participate in operations. Requires personal use to stay below 14 days or 10% of rented days per year, and 500+ hours of personal participation in STR activities. Combined with OBBBA 100% bonus depreciation, this can create large first-year losses that offset W-2 or other ordinary income.
Does the primary residence exclusion apply when selling a former STR?
Partially. If you lived in the home for at least 2 of the 5 years before sale, the exclusion applies to the qualified-use portion of the gain. Years the property was an STR (non-qualified use) reduce the exclusion proportionally. Depreciation recapture is not sheltered by the exclusion regardless.
Can I use my STR personally and still get the tax benefits?
Only if personal use stays below 14 days AND below 10% of total rented days. Exceeding either threshold moves the property to mixed-use classification, which limits expense deductibility and eliminates non-passive loss treatment. Most full-time STR investors keep personal use to zero or under 14 days to preserve full tax treatment.
Own Luxury Homes® — STR transaction specialists who advise on use classification at acquisition so the tax structure works from day one. 12-Point Agent Integrity Audit™. Talk to an STR transaction specialist ›
"The introduction Own Luxury Homes® makes is to a specialist with documented closing history in your specific market — not the county, not the metro, the submarket you're actually selling or buying in. That's the standard we verify before your name goes anywhere."
— Ryan Brown, Principal Broker & CEO, Own Luxury Homes® (FL License BK3626873)