10 Tax Tips for Vacation Rentals

Airbnb and other vacation rental companies are becoming more popular, causing homeowners to face new tax issues. If you use Airbnb, HomeAway, VRBO, FlipKey, or other short-term rental services, you can reduce or eliminate your income taxes by following these tips.

November 9, 2022

10 Tax Tips for Vacation Rentals on Airbnb, HomeAway, and VRBO


With the increasing popularity of Airbnb and other vacation rental companies, an increasing number of people are renting out their homes and discovering a new set of tax issues that come with it. If you offer your home, or a room in your home, as a short-term rental through services like Airbnb, HomeAway, VRBO, FlipKey, and many others, you can keep your income taxes to a minimum—and sometimes even eliminate them entirely—if you follow some of these helpful tax tips.

1. Understand the 14-day rule

The 14-day rule, which is popular in Georgia during the annual Masters golf tournament and is sometimes called the "Masters exception," is the most important rule for anyone who wants to rent out a vacation home. This rule states that you do not have to pay taxes on short-term rental income as long as you:

- Rent the property for no more than 14 days per year AND 

- Use the vacation house for 14 days or more per year, or at least 10% of the total number of days you rent it out

Source: Vincere Tax

Source: Vincere Tax

2. Learn about room exceptions

If you only rent out one room in your house, the 14-day rule applies just as much as if you rent out the entire house. You don't even have to report the income on your taxes if it's been 14 days or less, but you can't take any deductions either.

3. Don't be alarmed if you receive an IRS letter

The rule is simple: if you stay within the 14-day rule, you don't have to report rental income. However, due to reporting laws, companies such as Airbnb, HomeAway, and VRBO may be required to report to the IRS all income from short-term rentals, even if you rent for less than two weeks.

If this occurs and you do not include the income on your tax return, the IRS may contact you. Don't be alarmed. Simply show that your income qualifies for the 14-day exception.

4. Maintain meticulous rental period records

If you treat your short-term vacation rental as a business from the start and keep meticulous records, you'll have a much easier time dealing with tax issues.

If you rent out your home for two weeks or less, keep meticulous records of both rental days and days spent in the residence. If you rent for more than 14 days, make sure you detail the dates so you can properly divide personal and business expenses, such as mortgage interest.

5. Keep track of all business expenses

You can deduct all "ordinary and necessary" expenses for running your rental business. Consider your rental to be a bed-and-breakfast, similar to the "B&B" in Airbnb. You can deduct these expenses from your rental income if you buy new towels for your guests, repaint the guest room, or put a bottle of wine on the table for incoming guests.

You won't have to go back through credit card statements for proof for the IRS if you keep clear records and record all money you spend on the business.

6. Divide mortgage interest and taxes if you only rent a room

You pay taxes on the rental amount and can deduct business expenses if you rent out a room rather than the entire house for more than 14 days. However, expenses such as mortgage interest and property taxes are not fully deductible. These must be divided between personal and business uses of your home.

7. Complete Form W-9 Taxpayer Identification Number

Airbnb, HomeAway, VRBO, FlipKey, and similar companies must keep 28% of your rental income if you don't provide them with a W-9 form. Your effective tax rate will almost always be less than 28%.

There's no reason to let the IRS keep your overpayment all year, so file that W-9. Once you have done so, the rental company can reduce the withholding percentage, allowing you to access the full amount of rental income right away.

8. Deduct the guest- or host-service fees

Airbnb, FlipKey, and other short-term rental companies typically charge a percentage fee, known as a guest-service fee or a host-service fee, on top of the rent paid by guests. The amount of service fees is included when these companies send you and the IRS a 1099 form reflecting your house rental earnings for the year.

You can and should deduct this fee from your reported rental income if you rented out your home or apartment for more than 14 days during the year. You can deduct the entire amount paid because 100% of the fee was directly related to the rental use of the property.

9. Learn about any applicable occupancy taxes.

Short-term rental occupancy taxes are levied by some state and local governments. From the name of the tax—hotel tax in some states, transient lodging tax in others—to the rates and rules, they vary greatly between jurisdictions.

Most of the time, the host has to collect the occupancy tax directly from the renter and send the money to the tax authorities. However, in some cities and states, companies like Airbnb collect and send the taxes.

10. Pay self-employment taxes

If you are self-employed, you must pay self-employment taxes in addition to income taxes. Self-employment taxes cover Social Security and Medicare contributions for income earned while working for yourself.

The IRS may consider you to be self-employed in the vacation rental business if you rent out your home, make bookings, and provide amenities such as coffee or breakfast.

I hope this information was helpful! If you have any questions, feel free to reach out to us here. I’d be happy to chat with you.

Vincere Tax can help you with the tax implications of stocks, bonds, ETFs, cryptocurrency, rental property income, and other investments. 

Being audited is comparable to being struck by lightning. You don't want to practice pole vaulting in a thunderstorm just because it's unlikely. Making sure your books are accurate and your taxes are filed on time is one of the best ways to keep your head down during tax season. Check out Vincere's take on tax season!

Being audited is comparable to being struck by lightning. You don't want to practice pole vaulting in a thunderstorm just because it's unlikely. Making sure your books are accurate and your taxes are filed on time is one of the best ways to keep your head down during tax season. Check out Vincere's take on tax season!

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This post is just for informational purposes and is not meant to be legal, business, or tax advice. Regarding the matters discussed in this post, each individual should consult his or her own attorney, business advisor, or tax advisor. Vincere accepts no responsibility for actions taken in reliance on the information contained in this document.

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