A Few Tax Tips for Short-Term Vacation Rental Business owners
Short term vacation rental houses are super popular right now. Sites like Airbnb, VRBO, and others have made it a super convenient and lucrative way to make an extra buck by renting out your investment property, family cabin, RV, or even your main home! Here are a few tips to make sure there are no surprises when you file your taxes:
The 14-Day Rule: The most important for anyone considering renting out a vacation home. Under this rule, you don’t pay tax on income you earn from the short-term rental, as long as you:
Rent the property for no more than 14 days during the year AND use the vacation house yourself 14 days or more during the year or at least 10% of the total days you rent it to others.
If you just rent out one room in your house, the 14-day rule applies in the same way as if you rent out your whole house. Fourteen days or less, you don’t even have to report the income on your taxes, but you cannot take any deductions either.
However, because of reporting laws, companies like Airbnb, HomeAway, and VRBO will most likely report all income you receive to the IRS.
Regardless, we would suggest that you keep careful track of both rental days and the days you use the home yourself. Detail the dates precisely so you can properly divide out personal and business expenses, like mortgage interest. You’ll have a much easier time tackling tax, audit, liability, or licensing issues if you keep meticulous records.
Treat your short-term vacation rental as a business:
You are entitled to deduct all “ordinary and necessary” business expenses to operate your rental. Think of your rental as a bed-and-breakfast. If you buy new towels, bedding, or snacks on the table for incoming guests, you can deduct these expenses from your rental income.
Short-term rental companies like AirBNB and VRBO usually charge a percentage fee, called a guest-service fee or a host-service fee that is taken off the top of the rent that guests pay. When these companies send you and the IRS a Form 1099 reflecting your earnings for the year, it includes the amount of service fees. You can and should deduct this fee from your reported rental income, since 100% of the fee was directly related to the rental use of the property, you can deduct the entire amount paid.
We would advise keeping records and recording all money you spend on the business, so you won’t have to go back through credit card statements at tax time. This will also keep you prepared/covered in case of an audit. Credit card/bank account statements do not always make the cut, so keeping copies of receipts and other records are best practice.
*As always, these tax strategies should be discussed with a qualified tax preparer, tax accountant, or tax attorney before being implemented.*