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10 Tax Tips for Airbnb, HomeAway & VRBO Vacation Rentals10 Tax Tips for Airbnb, HomeAway & VRBO Vacation Rentals

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10 Tax Tips for Airbnb, HomeAway & VRBO Vacation Rentals10 Tax Tips for Airbnb, HomeAway & VRBO Vacation Rentals

1. Understand the 14-day rule

The tax code is full of exceptions, but the 14-day rule — sometimes called the “Masters exception” because it’s popular in Georgia during the annual Masters Golf Tournament — is for anyone considering renting out a vacation home are the most important. According to this rule, as long as you:

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Rent the property for no more than 14 days in a year and use the holiday home yourself for 14 or more days in a year, or at least 10% of the total number of days you rent it out to others.

Portland resident Alice Chan rents out her Oregon Coast vacation home several times a year to earn extra income. These days, she’s careful to keep her total rental period under 14 days — a strategy she recommends to others.

“In the first year, I accepted two one-week stays, plus 10 days over Christmas,” Chen said. “I ended up paying huge taxes and spending a lot of time trying to figure out my tax deductions and my finances. Right now, I’m only following the 14-day limit.”

2. Learn about room exceptions

If you’re renting out just one room in your home, the 14-day rule applies the same way you rent out the entire home. For fourteen days or less, you don’t even have to report your tax income, but you also can’t make any deductions.

3. Don’t panic when you get an IRS letter

The rules are simple: you don’t need to report rental income if you follow the 14-day rule. However, due to reporting laws, companies like Airbnb, HomeAway, and VRBO may report to the IRS all of your income from short-term rentals, even if your rent is less than two weeks.

If this happens and you didn’t include your income on your tax return, you may get a message from the IRS. Don’t panic. You only need to demonstrate that the income qualifies for the 14-day exception.

4. Keep a perfect lease record

If you treat it as a business from the start and keep meticulous records, you’ll have a lot easier on the tax issues of short-term vacation rentals.

If you rent out your home for two weeks or less, carefully keep track of the rental dates and the dates you use the home yourself. If you’re renting for longer than the 14-day exception period, please detail the dates exactly so you can properly divide personal and business expenses, such as mortgage interest.

5. Record all business expenses

You are entitled to deduct all “ordinary and necessary” expenses of running a rental business. Like a “B&B” in Airbnb, think of your rental as a bed and breakfast. If you buy new towels for your guests, repaint your room, or put a bottle of wine on the table for your guests, you can deduct these expenses from your rental income.

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By keeping clear records and keeping track of all the money you spend on your business, you no longer have to prove to the IRS with your credit card statement.

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6. If you only rent the room, split the mortgage interest and taxes

If you rent out a room, not the entire house, for more than 14 days, you will be required to pay tax on the rent and you can cover the business expenses. However, you cannot deduct 100% of charges like mortgage interest and property taxes. These must be divided between the personal and commercial use of your residence.

7. Fill out Form W-9 Taxpayer Identification Number

Airbnb, HomeAway, VRBO, FlipKey and similar companies must withhold all 28% of your rental income if you do not provide them with a W-9 form. In most cases, your effective tax rate will be less than 28%.

There is no reason for the tax authorities to withhold your overpayment for an entire year, so file a W-9. Once you do this, the rental company can lower the withholding percentage, allowing you to get the most rental income right away.

8. Deduction of Guest Service Charges or Host Service Charges

Airbnb, FlipKey, and other short-term rental companies typically charge a percentage, called a guest service fee or host service fee, which is deducted from the rent a guest pays. When these companies send you and the IRS a form 1099 that reflects your rental income on your home for the year, it includes the service fee amount.

If you rent out your house or apartment more than 14 days in a year, you can and should deduct this expense from your reported rental income. Since 100% of the fee is directly related to the rental use of the property, you can deduct the full amount paid.

9. Know the applicable occupancy tax

Some state and local governments impose occupancy taxes on short-term rentals. These vary widely from one jurisdiction to the next, from the name of the tax (hotel tax in some states, temporary lodging tax in others) to tax rates and rules.

In many cases, landlords are required to collect occupancy taxes directly from tenants and submit the money to tax authorities, but some companies, such as Airbnb, collect and file taxes in certain cities and states.

10. Pay Self-Employment Tax

If you are self-employed, you must pay self-employment tax as well as income tax. Self-employment taxes cover Social Security and Medicare contributions on income you earn while doing business for yourself.

When you rent out your home, make a reservation, and provide amenities like coffee or breakfast, the IRS may treat you as a self-employed person in the vacation rental business.

To learn more about tax deductions, visit our Airbnb Self-Employed Tax Deduction Calculator.

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