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.
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.
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:
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.
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.
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:
How you report your short-term rental tax will depend on whether your income is considered active or passive.
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:
This income should be reported on a Schedule C form and will be subject to self-employment tax.
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:
Passive income is reported on a Schedule E form.
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.
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.