How to prove your short-term rental hours: the 100-hour test

By Max Medvedev · 24 Jul 2026 · updated 6 Aug 2026

The test that decides whether your loss reaches your W-2

A short-term rental loss only offsets W-2 income if you materially participate in the activity. The passive-activity regulations list seven ways to prove that — Reg. §1.469-5T(a) — and any one of them is enough. Most of what searchers call "the short-term rental loophole" comes down to passing one of those seven tests in a way you can still prove two years later.

You do not need all seven. For a working owner with one property, two matter:

• Test 1 — more than 500 hours. No comparison with anyone else, but a steep climb next to a full-time job.
• Test 3 — more than 100 hours, and more than any other single individual. The workhorse, and the one this guide is about.

The other five lean on prior-year history, personal-service activities, or a narrow facts-and-circumstances argument. If this is your first year with the property, the race runs through test 3.

An hour race, run per person

Test 3 has two legs, and both must hold:

1. You participated for more than 100 hours during the year, and
2. your hours are more than any other single individual's — your cleaner, your co-host, your handyman, a property manager.

"Any other individual" is per person, never everyone combined. If three vendors each worked 90 hours, your 120 wins every race even though they total 270. If one cleaner worked 150, your 120 loses — over the 100-hour floor and still passive.

Two practical consequences:

• Log the other side's hours too. In Pohoski v. Commissioner, T.C. Memo 1998-17, the owner won on the condo where he could show he out-worked the manager and lost on the one where he could not. You cannot win a race without knowing the other runner's time.
• Do not build a log that wins by a tie. The regulation's literal words are "not less than" any other individual, but a record engineered to tie is a record built for an argument. Treat the bar as strictly more.

One more margin that surprises people: your spouse's hours count as yours. IRC §469(h)(5) folds a spouse's participation into your own, even if the spouse has no ownership interest. Twenty spouse hours of restocking and guest messages are often the difference.

What counts, and what never counts

The courts — more than the regulation — drew the sharp lines here. Day-to-day operating work counts. A few categories never do, no matter how they are labeled in your notes:

The cases behind that table, one line each:

• Mirch v. Commissioner, T.C. Memo 2025-128 — 744.5 claimed "site management / on-call" hours disallowed; being reachable is not work performed.
• Moss v. Commissioner, 135 T.C. 365 (2010) — on-call time is not participation, and a year-end "ballpark guesstimate" is not proof.
• Lucero v. Commissioner, T.C. Memo 2020-136 — hours spent traveling to a distant, manager-run rental did not count toward the tests.
• Barniskis v. Commissioner, T.C. Memo 1999-258 — investor-style bookkeeping hours could not beat the management company's work.
• Pohoski v. Commissioner, T.C. Memo 1998-17 — proof of the other side's hours decided both properties, one each way.

Log in real time, not in April

Reg. §1.469-5T(f)(4) sounds forgiving: participation may be shown "by any reasonable means," and daily time reports are not strictly required. The Tax Court applies it far less generously. Logs rebuilt at filing time read as guesses, and the tells repeat from case to case: round numbers, the same duration for every turnover, on-call time counted as work, totals that contradict the cleaning invoices you deducted, and hour claims that could not fit around a full-time job.

A real-time log answers all of that before anyone asks: entries dated when the work happened, sized to the task, with the message thread, receipt, or photo attached. An examiner's first move is to establish your other obligations — the day job, the commute — and then test whether your claimed hours were feasible. A log written as the year happens is what feasible looks like.

When the race is lost

Here is the failure mode end to end, computed live from a scenario where the owner logged plenty of hours — just not the right kind:

The 90 on-call hours would have "won" the race, 210 to 150 — but they never count. The 120 countable hours clear the 100-hour floor and still lose to the cleaner, so every test fails and the year's loss sits suspended at the passive gate instead of reaching the W-2. The fix was available all year: take back a few turnovers, or split the cleaning between two vendors so no single person out-hours you.

See where you stand

The math above is not special to that scenario. Run your own reservation mix and hours through the estimator — it applies the same seven tests, shows which one you pass or miss, and cites the rule behind every number. For the hour race on its own, the material participation checker runs all seven against your numbers.

Passing the test is the arithmetic half. Proving it is the half that decides audits, and it is where every recent loss in Tax Court was actually decided.