Running a short-term rental is a business, and the IRS treats it as one. The good news: that means many of your expenses are deductible. The less-good news: the rules are specific and getting them wrong can be expensive. Here's a plain-English overview of the key tax concepts every STR owner should understand. Always work with a qualified tax professional for your specific situation.
STR Income Is Taxable — With One Exception
If you rent your property for 14 days or fewer per year, the income is generally tax-free and you don't need to report it. This is sometimes called the "Masters Exception" (named after the Augusta National Golf Club, where homeowners have long rented to tournament guests). However, if you rent for 15 or more days, all rental income is taxable.
Schedule E vs. Schedule C
How you report your STR income depends on how involved you are in running it. Most passive landlords report on Schedule E (Supplemental Income). However, if you provide "substantial services" to guests — daily cleaning, meals, concierge — the IRS may classify your activity as a business, reportable on Schedule C. Schedule C income is subject to self-employment tax, which Schedule E is not. Your CPA can help you determine which applies.
Key Deductions for STR Owners
Expenses directly related to your rental activity are generally deductible. Common deductions include:
- Mortgage interest — proportional to the rental use percentage of the property
- Property taxes — proportional to rental use
- Vacation rental insurance premiums — fully deductible as a business expense
- Platform fees — Airbnb, Vrbo, and Booking.com service fees are deductible
- Cleaning and maintenance — cleaning services, supplies, routine repairs
- Utilities — proportional to rental use
- Furnishings and appliances — often depreciable over several years
- Marketing and photography — listing fees, professional photos, social media ads
- Property management fees — if you use a property manager
- Smart home equipment — noise monitors, smart locks, cameras used for the rental
Mixed-Use Properties
If you use the property personally as well as renting it, you must prorate your expenses based on the number of days it was rented vs. personally used. The calculation matters — if your personal use exceeds the greater of 14 days or 10% of rental days, different rules apply to your deductions.
Occupancy Tax
Most states and many cities require STR hosts to collect and remit occupancy tax (also called hotel tax or transient lodging tax). Airbnb and Vrbo collect and remit this on your behalf in many jurisdictions, but not all. Check your local requirements — failure to remit can result in penalties well beyond the tax owed.
Keep Meticulous Records
Track everything: income by month, every expense with receipts, the number of nights rented vs. nights used personally, and any capital improvements. Cloud-based accounting software like QuickBooks, Wave, or even a well-organized spreadsheet can save you significant money at tax time by making deductions easy to document and defend.
One deduction that's easy to overlook: your vacation rental insurance premium is a fully deductible business expense. Get a VIFO quote today — it protects your property and reduces your tax bill.