We can all agree—tax season is stressful. On top of that, vacation rental homeowners have to take an extra step: documenting rental income and expenses.
To help homeowners fill out taxes properly for their rental properties, the Internal Revenue Service offers a guide known as IRS Publication 527. This document focuses on residential real estate investments, including vacation homes rented out to travelers.
Let’s sum up IRS Publication 527 and what you can expect inside.
First things first—determine if you actually need to report rental income on your 2021 taxes. In most cases, the IRS requires you to include rental income in your overall gross income.
However, there are some exceptions. The one most relevant to vacation home owners: the 14-day rental rule. According to this rule, if a property is generally considered your residence and you only rent it out for no more than 14 days, you don’t have to pay taxes on the rental income or report that income to the IRS.
Vacation home owners generally use Schedule E to report the rental income and expenses from rental real estate. However, if you provide “substantial” services—such as cooked meals, concierge services, or tours—that your guests pay for, your income would generally be subject to self-employment tax. In those cases, IRS guidance is that you should use Schedule C instead.
IRS Publication 527 gives you a framework to report rental income and deduct expenses. Consider it your primary resource for any questions you have when filing taxes for your vacation rental.
IRS Publication 527 outlines what income should be reported, including rental payments, security deposits, and cancellation fees.
The publication also details which common expenses you can deduct on your taxes, including advertising, insurance, a property management fee, and cleaning. In one of the latest IRS Publication 527 updates, the IRS says that mortgage interest premiums paid to banks can also be considered an expense.
The deadline to file your 2021 income taxes is April 15, 2022. The best way to make tax time smoother? Have the right team in place.
A tax professional is crucial for navigating all the IRS rules and making sure you don’t miss out on any deductions.
On top of that, working with a full-service vacation rental property manager can streamline your taxes even more. For instance, Vacasa collects all the appropriate taxes from each stay, plus provides your annual rental data and income and a tax prep form—all accessible in your online account.
When tax season comes around, it’s common for questions to come up. When they do, turn to IRS Publication 527 as the official resource to anything related to your vacation rental taxes.
When you file your taxes, you’ll either use a Schedule E or Schedule C. Choose the Schedule E if your vacation rental property is primarily used for supplemental income rather than a primary business. Or, use Schedule C if you provide significant enough services for your guests—such as cooking, cleaning, or leading tours—that you could be considered a business or self-employed property manager.
There are several vacation home expenses you can write off to reduce your taxes. IRS rules can get complicated, but the general rule of thumb is that the expenses must be:
Possible deductible vacation home expenses include cleaning fees, HOA fees, maintenance and repairs, utilities, and marketing services. Want to maximize your tax savings? Consider these 10 tax deductible vacation rental expenses.
If your property is rented for more than 15 days of the year and used personally for less than 14 days, the IRS would generally consider your home a rental property. To see if your circumstances qualify your second home as a vacation rental or not, check out our breakdown of the 14-day rule.
Call 844-518-0967 to speak with a Homeowner Consultant, who can answer preliminary questions and see if we’d be a good fit for you.
If you'd like to move forward, we’ll put you in touch with our market expert in your neighborhood to explore the financial potential of your home, outline our management fee, and introduce your local team.
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