Listed on websites like Airbnb or VRBO, short-term rental homes have grown in popularity recently. Although renting out a house for a brief period of time might be a terrific method to generate extra cash, it’s crucial to understand the tax ramifications.

We will examine the tax regulations for short-term rental homes in this blog and provide you further insight into how to handle your tax obligations.

What is a Short-Term Rental Property?

A property that is rented out for less than 30 days is considered a short-term rental. Usually, this kind of rental is available on a website like Airbnb, VRBO, or HomeAway.

Owners of short-term rental homes have the option of renting out their entire residence or just a section of it, such a mother-in-law suite or an extra bedroom. Short-term rentals can be a terrific way to supplement your income, but before you rent out your property, it’s crucial to understand the tax ramifications.

Rental Income and Taxes

You must include the rental revenue from renting out your property for brief periods of time on your tax return. The Federal Revenue Service (IRS) considers the revenue you receive from your short-term rental property to be taxable income (IRS).

It’s crucial to know that you do not have to record this income on your tax return if you rent out your property for fewer than 14 days every year. This is referred to as the “14-day rule” and it applies to all varieties of rental homes, not only those used for short-term stays.

Deductible Expenses

You may deduct some costs connected with your rental property if you own a short-term rental property. Your ability to deduct certain expenses from your taxable rental revenue includes:

1. Property Taxes: In general, property taxes for rentals, including short-term rentals, are deductible.
2. Mortgage Interest: If your rental property is financed by a mortgage, you may deduct the interest you have paid.
3. Insurance Premiums: You can deduct the cost of your rental property’s insurance.
4. Repair and Maintenance: Typically deductable when they pertain to your rental property.
5. Cleaning Fees: You can deduct cleaning costs you incur between tenants.
6. Utilities: The cost of the utilities used by your rental property is deductible.
7. Depreciation: Tax deduction that enables you to write off the cost of your rental property over time.

In order to benefit from these deductions when it’s time to submit your tax return, it’s crucial to keep complete records of all costs associated with your short-term rental property.

State and Local Taxes

Owners of short-term rental properties may also be required to pay state and local taxes in addition to federal taxes. Depending on where your rental property is located, these taxes may change.

Several states demand that owners of properties used for short-term rentals gather and send sales tax on the money they make from the rentals. You might need to pay a transient occupancy tax or seek a business license in other states (also known as a hotel tax or lodging tax).

To make sure you are in compliance with all tax regulations, it is crucial to understand the state and local tax requirements for your rental property.

Record Keeping

It’s crucial to maintain precise records of all transactions involving your short-term rental property in order to make sure you’re appropriately reporting your rental income and expenses.

This include keeping account of rental revenue, costs, and any taxes that have been paid. Together with any correspondence with visitors, you should also save all receipts and invoices for all costs associated with your rental property.

You can make sure you are taking full advantage of all tax deductions by keeping correct records, which can also help you stay out of trouble with the IRS.

You can make extra money by renting out your home on short-term rental websites like Airbnb. To ensure that you are in compliance with all tax rules and are utilizing all permitted tax deductions, it is crucial to understand the tax consequences of this kind of rental property.

Don’t forget to keep thorough records of all financial transactions involving your short-term rental property, including revenue, costs, and taxes paid. This will ensure that you are getting the most out of your tax benefits and assist you avoid any potential IRS problems.

It is always a good idea to speak with a tax expert if you have any questions or concerns about the tax ramifications of short-term rental properties. A tax expert can offer you specialized advice and assistance based on your unique circumstances.

F2H Capital Group is a debt advisory firm specializing in negotiating the best terms for your commercial real estate projects. The company offers a range of financial products and services, including fixed loans, bridge loans, and construction loans across all asset types. Please contact us for any of your financing needs.