How to Qualify for STR Non-Passive Status or Real Estate Professional Status in 2026

About Donna Gilmore

Donna Gilmore is the Director of Operations for COAST, the #1 eXp real estate team in South Carolina. She specializes in Hilton Head investment properties, short-term rental strategy, and tax optimization for high-net-worth investors. Schedule an Investment Consultation →

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# How to Qualify for STR Non-Passive Status or Real Estate Professional Status in 2026 (Hilton Head Investor Guide)

If you're investing in a Hilton Head or Bluffton short-term rental (STR), understanding whether you qualify for STR non-passive status or Real Estate Professional Status (REPS) can dramatically affect your tax savings—especially when combined with cost segregation and bonus depreciation.

This guide breaks down both classifications, how they differ, and how Hilton Head investors can use them to reduce taxable income in 2026.

STR Non-Passive Status vs Real Estate Professional Status (REPS): What’s the Difference?

Most Hilton Head STR owners find the STR loophole far easier to qualify for than REPS.

How to Qualify for STR Non-Passive Status

Your short-term rental must meet the IRS definition:

• Average stay is 7 days or less, OR
• Average stay is under 30 days with substantial services

Most Hilton Head STRs meet the 7-day rule automatically due to weekly rental patterns in Sea Pines, Palmetto Dunes, Shipyard, and Folly Field.

Then you must meet ONE of these tests:

Test #1 — 100+ hours AND more time than anyone else

• Guest communication
• Pricing & calendar management
• Maintenance coordination
• Reviewing reviews & responding to inquiries

Test #2 — 500+ hours during the year

Test #3 — You perform “substantially all” the work

What counts as participation?

• Messaging guests
• Overseeing cleaning or turnovers
• Making repairs or coordinating vendors
• Adjusting pricing or updating the listing
• Managing reservations and supply stock

How STR Non-Passive Status Reduces Taxes

If your STR qualifies, depreciation from your property—including bonus depreciation from cost segregation—can offset:

• W-2 income
• 1099 income
• Business income
• Commission income

This is why the STR loophole is so powerful for Hilton Head investors: it unlocks tax strategies normally available only to full-time real estate professionals.

How to Qualify for Real Estate Professional Status (REPS)

REPS is more demanding but beneficial for full-time real estate agents, brokers, and investors.

To qualify, you must meet BOTH tests:

• 750+ hours per year in real estate activities
• More than 50% of your total working time in real estate

Common REPS activities:

• Property acquisition
• Real estate sales or brokerage
• Managing rental property
• Renovations
• Operations oversight

For many Hilton Head investors, REPS is unnecessary because STR non-passive status provides the same tax benefits with fewer requirements.

Hilton Head Example: STR vs REPS

Consider a luxury STR purchased for $1,200,000:

• Depreciable basis (after land): $960,000
• Cost segregation depreciation: ~$225,000

If the property qualifies as STR non-passive OR the taxpayer qualifies for REPS:

→ $225,000 depreciation can offset W-2 or 1099 income

At a 30% tax rate, this could save ~$67,500 in the first year alone.

Which Strategy Should You Use?

Choose STR Non-Passive Status If:

• You own one or a few STRs
• You have a full-time job outside real estate
• You self-manage parts of your STR
• You want tax benefits without going full-time real estate

Choose REPS If:

• You work full-time in real estate
• You own multiple rentals (STR + long-term)
• You want to use depreciation across your full portfolio

FAQs

Do I need to be a licensed real estate agent to qualify for REPS?

No. REPS is about hourly participation, not licensing.

Can my spouse qualify for REPS while I keep my W-2 job?

Yes. Filing jointly allows REPS benefits to flow to household income.

Does STR non-passive status require self-management?

You must materially participate, but you can still outsource cleaning or some tasks.

Which strategy offers the biggest benefit?

For most Hilton Head investors, STR non-passive is easier to qualify for and provides similar tax benefits.

Want to Know Which Strategy Fits Your Property?

I help investors evaluate whether STR non-passive status or REPS is the best fit for their goals, and how to combine either with cost segregation for maximum tax savings.

Want a personalized tax strategy overview? Contact me and I’ll walk you through your options.

Disclaimer

This article is for educational purposes only and does not constitute financial, tax, or legal advice. Please consult a qualified CPA or tax professional for your personal situation.

About the Author

By: Donna Gilmore – Realtor & Director of Operations for the #1 eXp Team in South Carolina

Expert Real Estate Mentor & Team Transition Specialist | AI Systems Strategist for Top-Producing Agents & Teams | Creator of the Systems-to-Scale AI Implementation Method™

Helping agents, teams, and leaders implement AI, automation, and high-performance systems to grow smarter, scale faster, and dominate their markets.