How to Calculate Short-Term Rental Tax

When it comes to filing your short-term rental tax, your financial records need to be organized and accessible.

With the increased popularity of short-term rental (STR) platforms like Airbnb and VRBO, more people than ever are renting out their properties for short periods of time, from vacations to weddings and other events. Whether you rent out your primary residence from time to time or own properties in your portfolio that are solely vacation rentals, there will be different implications when it comes to tax.

Here’s everything you need to know about short-term rental tax.

What counts as a short-term rental?

Short-term rentals are most commonly used by people either on vacation or business trips. As such, stays vary from a few nights to several weeks. A short term rental is normally a residential property, unit or accessory dwelling that is rented out to guests for no more than 30 consecutive nights at a time. However, the maximum length can vary depending on the state and jurisdiction in which the rental is located.

Month-to-month leases are generally not considered short-term if there is no specified end date.

Short-term rentals can refer to single-family houses, multi-family properties, or even individual rooms in either of these.

What is the 14-day rule and how does it affect short-term rental tax?

While the official classification of a short-term rental is one that is rented out for up to 30 nights, the 14-day rule offers a tax exemption for properties that are only rented for up to two weeks during the year. You do not have to pay tax on rental income as long as:

  • You rent the property for 14 days or under during the year
  • You stay in the same property for 14 days or more during the year (or at least 10% of the days you rent it out)

These rules apply regardless of how much rent you charge for the 14 nights. You cannot take any additional deductions, however. This rule may not be so relevant for career landlords, as the requirements are on the strict side. Nonetheless, it is worth remembering if you are ever looking to rent out your primary residence on a one-off occasion.

When do you need to start paying short-term rental tax?

If like most landlords, you are renting out your property for more than 14 days a year, the IRS will view you as a landlord, and as such, your rental income will be a taxable source of income and you will also take advantage of the tax benefits associated with running a rental. In order to ensure you stay compliant with the IRS and maximize your profits, you will want to accurately track all of your income and expenses using a system like Landlord Studio.

Short-term rental tax deductions

When filing your taxes, there are a number of deductions that landlords with short-term rentals can claim. These deductions will decrease your tax and increase your rental income. Some examples of these are:

  • Cleaning supplies
  • Toilet paper
  • Mileage
  • Education
  • Marketing
  • Furniture
  • Travel for business (as long as you spend more than 50% of your time engaging in business activity)

How to report short-term rental tax

How you report your short-term rental tax will depend on whether your income is considered active or passive.

Active income

STR income is considered active if you provide ‘substantial services’ to your guests. These are services that would not generally be included in a standard rental agreement and include things such as:

  • Daily housekeeping
  • Daily changing of bed sheets
  • Concierge services
  • Meals and entertainment
  • Organized tours and transport
  • Other hotel-like services

This income should be reported on a Schedule C form and will be subject to self-employment tax.

Passive income

On the other hand, STR income can be considered passive if you aren’t providing substantial services. Insubstantial services are things that would normally be included in a rental, such as:

  • Heating
  • Air conditioning
  • Water
  • Gas
  • Internet
  • Maintenance
  • Trash collection

Passive income is reported on a Schedule E form.

Using Landlord Studio to manage your short term rental

Landlord studio dashboard

Whether your STR income is active or passive, it’s important to document your income and expenses throughout the year. That way, when it comes to filing your short-term rental tax, your records will be organized and accessible.

To assist you in managing your STR with the most efficiency, there is property management software that is purpose-built for landlords. Landlord Studio allows you to manage your leases, digitize your receipts, log tenant-payable expenses and much more, at the tap of a button.

Final words

There are many moving parts related to STR management, so it’s important to remain within the guidelines and laws where you are. Filing short-term rental tax correctly will reduce the likelihood of being subject to an IRS audit and will make your job as a landlord less stressful and more enjoyable.

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