Introduction:
The rise of platforms like Airbnb, VRBO, and other short-term rental sites has created new income opportunities for property owners. But with that extra income comes extra responsibility—especially when it comes to taxes. Whether you’re renting out a spare room, a vacation home, or multiple properties, the IRS and state tax authorities expect you to report your earnings correctly. Missteps can lead to penalties, audits, or unexpected tax bills.
Here’s what every vacation rental host needs to know about the tax side of short-term rentals.
1. Rental Income Is Taxable
All income you earn from renting out your property—whether for one night or several months—must be reported on your tax return. The IRS receives information directly from platforms like Airbnb, which issue Form 1099-K or 1099-MISC if your rental income meets reporting thresholds.
Key point: Even if you don’t receive a 1099, you’re still required to report the income.
2. The 14-Day Rule (The “Masters Exemption”)
There’s one exception: If you rent out your home for 14 days or fewer during the year, you don’t have to report the income. This is sometimes called the “Masters exemption” (because homeowners in Augusta, GA, famously rent out their homes during the Masters golf tournament).
But: If you go beyond 14 days, all rental income becomes taxable—even the first 14 days.
3. Deductible Expenses for Vacation Rentals
The good news is that you can deduct many expenses to offset your rental income. Common deductions include:
- Mortgage interest and property taxes
- Utilities and insurance
- Repairs and maintenance
- Cleaning fees and supplies
- Depreciation of the property
- Service fees charged by Airbnb or VRBO
If you use the property for both personal and rental purposes, you’ll need to allocate expenses between personal and rental use.
4. Self-Employment Tax Considerations
Most rental income is considered passive income and not subject to self-employment tax. However, if you provide substantial services to guests (like daily cleaning, meals, or concierge services), the IRS may treat your activity as a business—meaning you could owe self-employment tax in addition to income tax.
5. State and Local Taxes
In addition to federal taxes, you may owe:
- State income tax (Oregon residents, for example, must report Airbnb income; Washington has no state income tax but does have business & occupation tax considerations in some cases).
- Local lodging or occupancy taxes, which many cities and counties impose on short-term rentals. Some platforms collect these taxes automatically, but not always, so check your local rules.
6. Recordkeeping Is Critical
The IRS expects accurate reporting. Keep detailed records of:
- Rental income received
- Dates of rental vs. personal use
- Receipts for deductible expenses
- Copies of 1099 forms issued by Airbnb or other platforms
Good recordkeeping not only ensures compliance but also maximizes your deductions.
7. When to Seek Professional Help
Short-term rental taxation can get complicated quickly, especially if you:
- Rent multiple properties
- Use the property for both personal and rental purposes
- Provide services that may trigger self-employment tax
- Operate in multiple states or cities with different tax rules
A tax attorney can help you:
- Determine the correct way to report your rental income
- Maximize deductions while staying compliant
- Navigate IRS audits or disputes
- Plan proactively to reduce your tax burden year after year
Conclusion:
Renting out a vacation property on Airbnb or similar platforms can be a great source of income, but it comes with tax responsibilities. From the 14-day rule to deductible expenses and local lodging taxes, understanding the rules is essential to avoid IRS trouble.
If you’re an Airbnb or vacation rental host, contact our office today. We’ll help you navigate the tax rules, protect your income, and keep your rental business compliant.
Disclaimer:
This post does not constitute legal advice and does not create an attorney-client relationship, it is merely a general discussion of points of the law and may not be complete or up to date. Please contact our office for a consultation to discuss how tax laws may be relevant to your specific situation.