Vacation rental income is taxable, but so are many of your expenses. Understanding the tax implications helps you stay compliant while maximizing legitimate deductions.
Types of Taxes
Income Tax
- Rental income is reported on Schedule E
- Net income (after deductions) is taxed
- Self-employment tax may apply
Transient Occupancy Tax (TOT)
- Local tax on short-term rentals
- Typically 8-15% of rental revenue
- Some platforms collect automatically
- You're responsible for remitting if not collected
Deductible Expenses
Direct Expenses (100% Deductible)
- Platform fees (Airbnb, VRBO, etc.)
- Cleaning fees paid to cleaners
- Supplies for rental (toiletries, linens)
- Repairs and maintenance
- Property management fees
- Photography for listing
- Insurance premiums
Indirect Expenses (Prorated)
- Mortgage interest (rental portion)
- Property taxes (rental portion)
- Utilities (rental portion)
- Internet/cable (rental portion)
Depreciation
- Building value depreciated over 27.5 years
- Furniture/appliances depreciated faster
- Significant tax benefit
Record-Keeping Requirements
- Keep all receipts (digital is fine)
- Track rental days vs. personal use days
- Document business purpose of expenses
- Maintain for 7 years
When to Get Professional Help
- Rental income exceeds $20,000/year
- You have multiple properties
- Complex ownership structure
- Significant capital improvements
Conclusion
Proper tax planning can save thousands annually. Work with a tax professional who understands short-term rentals.
