short-term rental tax deductions

As 2022 comes to a close, tax season is just starting to sneak up on us. If you're like most hosts, you're probably dreading it. After all, short-term rentals can be a bit of a headache when it comes to taxes. But it doesn't have to be that way! With a little bit of planning and organization, you can make short-term rental tax deductions a breeze. This post shares everything you need to know about how to correctly record short-term rental deductions on your taxes.

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! 

What are the Tax Deductions for Short-Term Rentals?

Short-term rental hosts can deduct a number of expenses related to their rental property from their taxes. These deductions can include the cost of cleaning, depreciation, and furnishings, as well as the cost of any services used to manage the property.

Additionally, hosts can deduct the expenses of advertising and marketing the property, as well as any fees charged by short-term rental platforms. You can even deduct the cost of any utilities you pay for the property and the cost of insurance you've purchased for the rental.

While the specific deductions available to STR hosts will vary depending on their individual circumstances, understanding which expenses are tax-deductible can help hosts maximize their profits and minimize their tax liability.

short-term rental tax deductions

How to Calculate Short-Term Rental Deductions

Calculating short-term rental deductions can be a bit tricky, as many of the expenses associated with running a short-term rental are variable. For example, the cost of utilities will vary depending on how often the property is rented, and the cost of repairs will fluctuate based on the age and condition of the property.

Simply put, the formula for calculating your short-term rental deductions is so:

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

However, that isn't always as straightforward as plugging in numbers. We recommend using a short-term rental income and expenses tracker to make things easier. This will help you keep track of all your short-term rental-related income and expenses in one place, making it simpler to calculate your deductions come tax time.

In addition to using a short-term rental income and expense tracker, there are a few other things you can do to make calculating your short-term rental deductions a breeze. First, be sure to keep all your receipts! This includes receipts for repairs, furnishings, and any other short-term rental-related expenses.

Additionally, if you use a short-term rental platform like Airbnb, we recommend downloading your transaction history from the platform. This will give you a complete record of your short-term rental income, as well as any fees charged by the platform.

Finally, we suggest discussing your short-term rental deductions with a tax professional. They can help you understand which expenses are deductible and how to properly calculate your deductions come tax time.

short-term rental tax deductions

Are there any Restrictions on Claiming these Deductions?

There are some restrictions when it comes to claiming short-term rental tax deductions. For starters, you can only deduct the expenses directly related to your property's rental.

This means that any general maintenance or repair costs cannot be included. Additionally, you can only deduct a certain amount of your mortgage interest and property taxes. 

Note: 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.

Can I Still Deduct Expenses if I Don't Yet Make a Profit from Renting My Property Out as an STR?

If you're new to renting out your property, it's important to be aware of the tax implications. In general, you can deduct expenses related to your rental property from your taxes as long as you are making a profit from the rental income. However, if you are not yet making a profit, you may not be able to deduct all of your expenses. It's important to talk to a tax professional to determine what deductions you may be eligible for. In some cases, even if you are not making a profit, you may still be able to deduct some expenses, such as maintenance and repairs. So don't despair if your rental business isn't turning a profit just yet - there may still be some ways to reduce your tax bill.

How Do I Report Income From an STR to the IRS?

If you're renting out your property as a short-term rental (STR), it's important to report your rental income to the IRS. The process for reporting your income will vary depending on how your guests pay you. 

For example, if you are paid through a short-term rental platform like Airbnb, the platform will typically send you a 1099 form that you can use to report your income. However, if you are paid via your own direct booking site, you will need to keep track of all your rental income and report it on your taxes yourself. Additionally, you will need to pay self-employment tax on your short-term rental income unless you are incorporated as a business. Be sure to keep track of your short-term rental income and expenses, and speak with a tax professional to ensure you are correctly reporting your income come tax time.

Overall, short-term rental tax deductions can be a great way to save money on your taxes. However, there are some restrictions that you should be aware of before claiming any deductions. Additionally, we recommend speaking with a tax professional to ensure that you are taking advantage of all the deductions you are eligible for. Finally, don't forget to report your short-term rental income to the IRS!

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! 

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