All perfect praise be to Allah, The Lord of the Worlds. I testify that there is none worthy of worship except Allah, and that Muhammad is His slave and Messenger.
The Hadeeth that you referred to in the question was reported by Abu Daawood and was narrated by Ibn ‘Umar and it is an authentic Hadeeth.
The prohibition of imitating the disbelievers (non-Muslims) in their festivals, looks, and clothing is not judged as Kufr that takes a person out of the fold of Islam. A person does not become a Kaafir (non-Muslim) unless he does something because of loving the non-Muslims and having affection for them.
Khaleel ibn Is-Haaq, from the Maaliki School of jurisprudence, when speaking about what necessitates apostasy, said:
"Apostasy is when a Muslim becomes a Kaafir when he utters an explicit text of disbelief, or wording that requires it, or when he does an act that includes Kufr, such as throwing the Mus-haf (the Arabic hardcopy of the Quran) into a filthy place, or when he wears a Zinnaar (a sash around the waist, the one peculiar to non-Muslims, such as the one worn by the priests and bishops).” [End of quote]
For more benefit, please refer to Fatwa 263416.
Ad-Dardeer said: “What is meant by it is the clothes of the Kaafir that is peculiar to him. Meaning, if he does it because of loving the Kaafir, and while having affection towards the disbelievers. However, if he wears jokingly, then it is forbidden but not Kufr.” [End of quote]
Shaykh Ibn 'Uthaymeen said:
"With regard to the saying of the Prophet : "Whoever imitates a people is one of them.”; the very least that can be said about this Hadeeth is that it is forbidden to imitate them, although the apparent meaning implies that the one who imitates them becomes a Kaafir like them. However, if the imitation is not in the matters of creed (belief) or in a deed that leads to Kufr, then it is only forbidden.” [End of quote]
The statement of Shaykh Ibn Taymiyyah does not mean that he is of the view that whoever does that is absolutely a Kaafir, because he did not authoritatively say that. This becomes clear in his full statement after that, where he said: “It may be interpreted that he is like them to the extent that he imitated them in, if it is a disbelief, or a disobedience, or a slogan (of disobedience), then his ruling is as such accordingly.” [End of quote]
This is the same meaning as what Ibn 'Uthaymeen said.
"Finally, it should be noted that the issue of Takfeer (declaring someone as a non-Muslim) is a very serious matter. If a person’s Islam is proven with certainty, then it cannot be overruled from him except with such certainty. So anything which is doubtful (may or may not mean Kufr), remains doubtful. The scholars set a rule that: 'Certainty is not overruled with doubt.'”
For more benefit on the conditions for declaring someone as a Kaafir, please refer to Fataawa 8106 and 87963.
Allah knows best.