Nothing stresses out a host more than short-term rental taxes. This post is a complete guide to navigating your short-term rental taxes. We’ll cover essential tax vocabulary, how to report your income, and how automating your rental with Host Tools will leave you with nothing to worry about come tax season!

Host Tools provides an automated, unified calendar for short-term rental hosts, allowing you to seamlessly list on all major channels. Start your free trial today! 

Essential STR Tax Vocabulary 

Taxes don’t have to be a mystery – let’s dissect a few basic phrases you’ll need to know when filing your short-term rental taxes:

Personal residence: A personal residence is a property that you rent out less than 14 days of the year. If your property falls under this category you do not need to report income to the IRS.

Split personal and vacation rental: If you use your property or rent it at a discount to family or friends for over 14 days, it is considered a split personal and vacation rental.  This means you will need to divide expenses on the property and only deduct a percentage of your expenses. 

For example, you may have personally used your vacation home for 50 days. The remaining 315 days of the year you rented your property out at a fair market price. You will divide 315 by 365. This means that you can deduct 86% of the expenses associated with the rental property. 

Vacation rental: You use your property completely for short-term rental use. This means that you can deduct 100% of expenses related to the property. Note: You can still use the property for personal use less than 14 days per year.

14 day or the 10% rule: If you rent out your property for less than 14 days or 10% of the available rental days, you do not need to report income. If you rent your property for 14 days or more than 10% of the available days you must report 100% of your income. If you personally use your property for yourself, or family or friends for over 14 days  you  will need to split up expenses that you can deduct. 

What Income Do I Need to Report to the IRS?

Knowing what you need to report can be tricky. It is important to keep thorough documentation of your income and expenses. Here are examples of what types of income you will need to report to the IRS:

• Rental income
• Cleaning fees
• Security deposits (unless returned to guest)
• Cancellation fees

What are Deductions and How Do I Report Them?

A deduction is an expense you spent on your short-term rental business that can lower your taxable income. This is a good thing! The more deductions you report, the lower your taxes are.

Before recognizing what you can deduct, you will need to decide if your property will be taxed under, Schedule C (1040), or Schedule E (1040). 

Schedule C (1040): You will use Schedule C if your property is your main source of income or is part of a vacation rental business or trade. Schedule C applies to hosts that offer additional services such as daily maid service or linen changes. If your property offers this, the IRS views your rental as a hotel service.

Schedule E (1040): This form is for hosts whose short-term rentals are passive income, or “a side hustle”, and may not be their primary source of income, or they do not provide hotel level service. 

Deduction examples for hosts using Schedule C & E

• Advertising and marketing
• Auto and travel
• Commissions paid to vacation rental platforms
• Cleaning and maintenance
• Depreciation
• Host service fees
• Legal and professional fees
• Management fees – This is where you write off services like Host Tools that help you automate your short-term rentals!
• Mortgage interest
• Office supplies
• Real estate taxes
• Repairs
• Utilities

Possible extra deductions:

As of 2017, short-term rental hosts may be eligible for extra deductions through 2025.

• Pass-through deductions: Hosts who either own their property or through a partnership may be eligible to deduct up to 20% of their net income.
• Significant improvements: If you have made a large-scale improvement to your property you may be eligible for additional deductions. Examples of significant improvements include the installation of fire and ventilation systems, roof repair, and/or security systems.
• Depreciation deduction: Your personal property used in the rental such as furniture and appliances.

How do I calculate deductions?

If you use your property personally for over 14 days a year you will need to calculate the percentage of your deductions you can write off. As you can see, it is MUCH better to try and use your property for less than 14 nights a year if possible. Then you can write off 100% of all of your expenses. 

Formula for calculating your deductions:

Total number of rental days / Total number of days used for personal and business purposes.

Example: Your property was rented for 200 days out of the year. You personally used the rental for 50 days. You will divide 200 by 250. Your deduction will be 80% of relevant expenses.

Additional STR Tax Tips for Hosts

• Fill out a W2. If you do not fill out a W2, the vacation rental platform you use is required by law to withhold 28% of your income.
• Keep consistent and accurate records of your rental periods
• Record every business expense throughout the year – the little things add up!
• Occupancy tax: Find out if your hosting platform, like Airbnb, submits occupancy tax on your behalf or if you need to do it.
• Self-employment tax: If you rent out your home with additional services, like Schedule C, then you will need to pay a self-employment tax in addition to your income tax.

Automate Everyday Tasks to Have the Time to Get Your Taxes Right.

Host Tools can help you to save time on repetitive tasks like guest messages, cleaner management, syncing your pricing and availability across platforms to prevent double bookings, setting smart lock codes, and more. This will leave you more time to spend on more important aspects of owning a short-term rental, like keeping track of your deductions and filing your taxes.   

To recap, short-term rental taxes can be overwhelming at first – but knowing some basics will help the process run smoothly: 

• Be sure to familiarise yourself with vocabularies such as personal residence, split residence, vacation rental, and the 14-day rule. 
• Understand what deductibles are, and which apply to you. 
• Remember the deductible formula: 
  • Total number of rental days / Total number of days used for personal and business purposes.
• Automate everyday tasks with Host Tools so you can focus on getting your taxes done right.

We know this short-term rental tax guide will set you up for success!

Host Tools provides an automated, unified calendar for short-term rental hosts, allowing you to seamlessly list on all major channels. Start your free trial today!