No one likes taxes, but it’s part of the cost of having a vacation rental, so it’s important to know what to do so that you don’t overpay or underpay these annual amounts. While we’re a cleaning service and would defer to your accountants on any specific questions, we work with enough vacation rental hosts to know the important areas that all hosts should be aware of, which is what we will highlight here.
Treat It Like a Business
While vacation rental listings might not feel like traditional businesses, they nevertheless produce income for you and hence the government is very interested in them. The other side of that there are deductions from that income that the government also recognizes. Let’s note what is considered income first:
- The actual nightly rates paid for your listing(s)
- Cleaning fees
- Cancellation fees
- Non-returned security deposits
The list of deductions is much longer, and this isn’t a comprehensive list, but it should get your mind going about what might be a deduction that you can run by your accountant:
- Maintenance work done to the listing (painting, repairs, etc)
- New linens for the listing
- Welcome gifts
- Service fees charged by the vacation rental platform
- Management fees
- Software fees
If you don’t live in the property the following charges are fully deductible, otherwise they are deductible as a percentage, i.e. if the listing takes up 25% of the entire living space of the home, then the corresponding charges would be 25% deductible:
- Mortgage interest
- Property taxes
- Home insurance
If your vacation rental listings serve as a primary source of income, then you might use Schedule C as part of your 1040 filing. If it’s more of a side hustle, then Schedule E will be your choice.
Don’t be thrown off by the fact that some vacation rental platforms only issue 1099-K forms (statements of income) to those with over 200 annual reservations and who have earned over $20,000. Just because you don’t get a form from a platform doesn’t mean you don’t owe money.
Your biggest friend in all of this will be the meticulous keeping of paperwork. This doesn’t mean an old-school filing cabinet or even a big folder stuffed with receipts. You can easily scan things and then shred them. The IRS is not interested in physical records as long as you have digital ones that can be shown to verify your assertions.
Something that varies per state, county, and even municipality is the occupancy tax. Some municipalities have reached agreements with platforms such that the occupancy tax is collected by those platforms at the time of reservation and then digitally remitted on the behalf of the host. Other cities are more old-school and require the host to take the occupancy tax from the guest in person, sometimes with proof of identification. Know what the law requires in your area and do your best to conform to it. This is not a tax that has anything to do with your federal taxes, but as long as we are talking about the subject, it’s important to mention it.
This content originally appeared in our twice-monthly Guest Book newsletter.
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