All Forum Posts by: Annie Anson

Hi there! First of all, congrats on taking the leap into vacation property investing—it's such an exciting journey, and I promise, with the right guidance, it can be incredibly rewarding! I've worked with several first-time investors, including out-of-state buyers like yourself, and it's 100% possible to build a successful short-term rental (STR) business even when you're managing remotely. Let me dive into a few things that might help.

On Meeting Active Status

You’re spot on about the 500-hour rule or the 100-hour rule with material participation. From what you’ve described, it sounds like you have a solid plan to ensure your hours meet the active participation criteria. Tasks like decorating, setting rates, marketing, and bookkeeping all count towards your hours, so as long as you’re documenting everything thoroughly, you should be in good shape.

That said, having a property manager for maintenance and on-the-ground needs can still work within the active participation framework. The key is ensuring you are contributing more hours than anyone else involved. For instance, if you’re handling the strategy, guest communications, and daily management while the property manager focuses solely on physical tasks, you’d likely qualify—especially since your husband wouldn’t be contributing hours. A great CPA who specializes in STRs can confirm this and help you stay compliant.

About That CPA…

Honestly, I'd recommend finding a new one. There are plenty of STR-savvy CPAs who can help you navigate the rules, maximize tax benefits, and make sure everything is done right. A CPA experienced in STRs should be able to break down exactly how to meet material participation requirements in your unique situation. (I can connect you with some resources if you'd like!)

Starting with the Right Property

Given that this is your first STR and you're planning to manage remotely, I'd suggest focusing on a market with a strong local infrastructure for short-term rentals—like Panama City Beach or Destin. I've helped several clients in similar situations find their first vacation properties here in Florida, and the Panhandle is fantastic for beginners because of its year-round tourism and robust support networks (property managers, cleaning services, etc.). You could even consider a condo with an established HOA that's STR-friendly—it can simplify maintenance and management.

A Few Other Things to Note: 

1. Documentation is everything. Keep detailed records of your hours and tasks—it’s crucial for proving active status if ever questioned.
2. Don’t overthink starting with Airbnb/VRBO. Many of my clients begin there, then transition to direct bookings once they’re comfortable. It’s a great way to learn the ropes.
3. Build the right team. A reliable property manager and CPA are worth their weight in gold, especially when you’re managing remotely.

If you’d like to chat more about what’s worked for my clients or have questions about specific markets, I’m always happy to share insights. I specialize in helping out-of-state investors find their ideal properties on the Emerald Coast/in the panhandle so I am more than happy to answer any questions I can to help. You’ve got this, and I can’t wait to hear about your first rental property success story! 😊

Quote from @Annie Anson:

My husband and I are ready to invest in our first vacation property, likely in Florida...  a short term rental property. 

What adds complexity to our plan, is that we live in Minnesota... 

...How challenging is it to meet the material participation hours needed to achieve active status?.. Is it possible to have a property manager who manages some of the property, while I manage the rest remotely? For instance, said property manager manages maintenance issues, problems that arise during bookings, basically anything that needs a physical person at the property, while I manage the rest? (i.e. initial decorating and painting, bookings, rate structures, marketing, bookkeeping housekeeping, etc)? 

First, do not get upset with the words "likely" or "possibly" - these words are accurate. Yes, I was tempted to type "these words are likely accurate" ;)  The reason is because tax rules are very much case-by-case, and your mileage may vary.

Here is an important clue in your particular situation: 
...I manage the rest? (i.e. initial decorating and painting, bookings, rate structures, marketing, bookkeeping housekeeping, etc)...

Let's count how much time you are going to spend doing what you described. Let's say you spent a month on the initial preparation: cleaning, painting, shopping for furnishings, assembling IKEA furniture and so on. We're possibly (sorry for using the p-word) talking about 200 hours. For the next 10 months (40 weeks) you spend a fairly reasonable 5 hours a week marketing, communicating with guests and your property manager and bookkeeping. Here is another 200 hours. We now have 400 hours in the bag, and hitting 500 is attainable during your first year.

But what if you only spent 2 days visiting this property and from that point on outsourced all work? Yes, you still do online shopping and coordination and so on, but hitting 500 hours in this case becomes far more challenging. Do you see why we accountants say "likely" and "possibly" in every paragraph we write?

If you cannot make 500 hours, then you need to make 100 hours and "outwork" everybody else. Let's say you have a guest every week for 10 months. This is 40 guests. And you use a cleaning lady who spends 5 hours to reset the property for the next guest. Now your cleaner has 200 hours, and you will have to spend at least 201. Is it doable? Well, at least it's much easier to gather 201 hours than 500 hours. But now you have a challenge of documenting both your time AND time of everybody else involved with the property.

Now, to answer your question - is it possible from out of state? Yes, it is, particularly if you undertake the initial preparation and furnishing of the property yourself. But the only way to have a definitive answer and avoid "likely" and "possibly" is to analyze your plan with your own CPA and find ways to boost your hours. Here is how to find such a CPA:
https://www.biggerpockets.com/forums/51/topics/1222774-expla...

You probably (argh, can't help myself) noticed that I was pointedly talking about the initial year. What about the second and third year when you no longer have the labor-intensive initial setup? Actually, you may not need to qualify in the second year. Why? Because your second year is likely (oops, I did it again) to show a net profit instead of net loss. It is your first year when you get the major tax savings windfall due to cost segregation and bonus depreciation. More about the concept of STR tax savings is here:
https://www.biggerpockets.com/forums/51/topics/1122635-the-s...

As to one CPA saying that your losses would still be passive, we cannot comment. Maybe you misunderstood what that CPA said. Maybe they meant a different context. Maybe they were not very good. But now you know.

Hi Annie! Congratulations on feeling ready to invest in your first vacation property. It sounds like you are circling the relevant issues with focusing on the material participation hours and clearing the threshold for either 500 hours or at least 100 hours and more than anyone else. These are the critical tests you will need to achieve and support with a detailed time log. The red flags of managing from a distance and hiring a property manager are legitimate concerns that make it more challenging. However, it is possible. One approach that I have not seen included in the discussion is as you are still in the planning phase, you could change your approach and the facts to make it more favorable for your strategy. Specifically, you could forego hiring a property manager in the first year, as this is when you would want to apply a cost segregation and accelerate depreciation. It sounds like what you really need is a handyman that you could send out when you need for on the ground maintenance. If you found a few handymen you could rely on, and make a trip out there for a few days to get things set up with shopping, decorating, and furnishing the STR that would remove the red flag of the property manager, and significantly boost your material participation hours to clear one of the thresholds. If you're intentional with it, you may be able to include some travel deductions as well. I hope this helps!

@Annie Anson

Working with a Property Manager:  If you hire a property manager for on-the-ground tasks like maintenance, you can still meet material participation—if you handle the majority of the work that drives the property’s success (e.g., guest services, pricing strategy, advertising). The key is ensuring you work more hours than anyone else on the property, including your property manager.

Keep a detailed log of your hours spent on the property—managing listings, coordinating cleanings, marketing, and even initial decorating/setup all count.

Some CPAs are conservative and hesitant to qualify STRs as active, particularly when property managers are involved.

Quote from @Annie Anson:

Quote from @Sean O'Keefe:

Quote from @Annie Anson:

My husband and I are ready to invest in our first vacation property, likely in Florida. We hope to eventually have multiple properties, but want to take our time to learn and make the right decisions with our first rental. I should add it will be a short term rental property. 

What adds complexity to our plan, is that we live in Minnesota. We would like for the investment to be treated as active, of course. However, we will likely need a property manager to assist with some facets of running this rental (since we would not live locally) and would primarily market it through platforms such as Airbnb and VRBO to start, (eventually setting up a direct booking process).

Here's our question for those who have experience in STR's or who might be involved in a similar scenario: How challenging is it to meet the material participation hours needed to achieve active status? My husband is a high income W2 earner, and meeting active criteria would put some of our tax dollars back in our pocket. Is it possible to have a property manager who manages some of the property, while I manage the rest remotely? For instance, said property manager manages maintenance issues, problems that arise during bookings, basically anything that needs a physical person at the property, while I manage the rest? (i.e. initial decorating and painting, bookings, rate structures, marketing, bookkeeping housekeeping, etc)?

According to what I have read straight from the IRS website and other places, we need to either meet 500 hours, or at least 100 hours and also work more than anyone else on the property. I feel I could definitely meet both of those on my own, as my husband works full-time , and I will be the only person besides the hourly employees stated above that would be accruing hours. However, the one CPA I briefly talked to said the investment would be treated as passive. No real explanation as to why or whether there were exceptions to that. 

We are newbies, and don't want to miss out on a great investment and tax savings opportunity, but obviously want to do everything correctly in the eyes of Uncle Sam. Thank you so much in advance for your help.

If you have a property manager and live 100s of miles away, it’s unlikely that you meet the material participation requirements to qualify for tax benefits you mentioned. 
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*This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.

 Hi Sean, 

With all due respect, unlikely meeting the requirements is not very useful information. This leaves a lot of room for interpretation and that is exactly the issue we are having at the moment. So far it sounds like we will just need to verify via a CPA, which is fine, if that is what we need to do.  I was hoping some folks might be in a similar situation or had a similar experience and might be able to share. I do appreciate you taking the time to respond regardless.

The IRS specifically calls out owner distance from rental and having a property manager as a red flag that owner isn't materially participating. Based on what you said you meet this criteria.

Everyone's situation is different. You may still qualify. Since leveraging this tax strategy could save you significantly on taxes if you do qualify you might want to seek personalized advice, that's tough to get in a public forum, to avoid missing out or getting audited and failing audit. 
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*This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice

Quote from @Annie Anson:

My husband and I are ready to invest in our first vacation property, likely in Florida. We hope to eventually have multiple properties, but want to take our time to learn and make the right decisions with our first rental. I should add it will be a short term rental property. 

What adds complexity to our plan, is that we live in Minnesota. We would like for the investment to be treated as active, of course. However, we will likely need a property manager to assist with some facets of running this rental (since we would not live locally) and would primarily market it through platforms such as Airbnb and VRBO to start, (eventually setting up a direct booking process).

Here's our question for those who have experience in STR's or who might be involved in a similar scenario: How challenging is it to meet the material participation hours needed to achieve active status? My husband is a high income W2 earner, and meeting active criteria would put some of our tax dollars back in our pocket. Is it possible to have a property manager who manages some of the property, while I manage the rest remotely? For instance, said property manager manages maintenance issues, problems that arise during bookings, basically anything that needs a physical person at the property, while I manage the rest? (i.e. initial decorating and painting, bookings, rate structures, marketing, bookkeeping housekeeping, etc)?

According to what I have read straight from the IRS website and other places, we need to either meet 500 hours, or at least 100 hours and also work more than anyone else on the property. I feel I could definitely meet both of those on my own, as my husband works full-time , and I will be the only person besides the hourly employees stated above that would be accruing hours. However, the one CPA I briefly talked to said the investment would be treated as passive. No real explanation as to why or whether there were exceptions to that. 

We are newbies, and don't want to miss out on a great investment and tax savings opportunity, but obviously want to do everything correctly in the eyes of Uncle Sam. Thank you so much in advance for your help.

If you have a property manager and live 100s of miles away, it’s unlikely that you meet the material participation requirements to qualify for tax benefits you mentioned. 
.
.
.

*This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.

@Annie Anson

Welcome and congrats on taking the first step! Not many people dig too deep on the actual requirements so kudos to you. You definitely want to talk to a different investor friendly CPA that helps their clients with cost seg's, and can articulate exactly what you will need to do to meet the requirements. 

I also highly suggest you connect with @Josh Green as well whom not only owns STR's locally, but has a management business. Tax savings are amazing and I have utilized cost segs myself, but you also have an opportunity to make an amazing return on your money in the Tampa Bay market. There is a formula that you must follow if you want to perform, having a realtor who knows the market inside and out and practices what they preach is an absolute necessity.