Guide to vacation rental taxes

Five tips for making your vacation rental taxes easier

Published March 2019

Vacation rental homeownership can be a joy. You can create lasting memories with family and friends, and you can turn your home into an income-generating investment when you offer it as a short-term rental. But for many second homeowners, figuring out vacation rental taxes can be an overwhelming and frustrating task.

Whether you manage your taxes yourself or you want to outsource them to your property management team, here’s a list of tips and resources to help you prepare for tax season.

1. Choose the right vacation rental tax form, Schedule E or C

Navigating IRS forms and schedules can be especially confusing if you’re a vacation homeowner. For most vacation rental owners, you’ll use either IRS Schedule E or C.

Form type

Schedule E (Form 1040)
Download

Schedule C (Form 1040)
Download

Use if

You rent out your property to earn supplemental income, but you don’t put enough work into it for the IRS to consider you a self-employed rental property manager.

You provide “substantial” services for your guests’ convenience during their stay (i.e., regular cleaning, linen service, or housekeeping).

Don't use if

You manage the property as your primary business activity, or you provide substantial services for your guests’ convenience during their stay (i.e., regular cleaning, linen service, or housekeeping).

You rent out your property to earn supplemental income, but you don’t put enough work into it for the IRS to consider you a self-employed rental property manager.

What you'll need

Documented expenses

All 1099s filed reporting contractor payments

Property usage schedule
Gross rental income

Documented expenses

All 1099s filed reporting contractor payments

Property usage schedule

Gross rental income

IRS Schedule SE (Form 1040)

Did you know?

Your short-term rentals could be subject to self-employment taxes if you are providing substantial services to your tenants. Vacasa handles everything for you, from the day-to-day burdens of maintaining your property to saving you time and potential self-employment taxes.

2. Consider the 14-day rental rule

One day can make the difference between paying hefty taxes and paying nothing at all. How much you owe—and how much you’re able to write off—will depend on how you use your property.

In simplest terms, the 14-day rental rule means you don’t pay taxes on the income you receive from your short-term rental if BOTH of the following are true:

  • You rent out the property for less than 14 days
  • You use the property yourself for 14 days or more

However, if you rent the property out for more than 14 days and use it yourself for less than 14 days, taxes can become a bit more complex.

Did you know?

Vacasa keeps track of your owner stays throughout the year so you don’t have to.

3. Vacation rental home tax write-offs

If you rent out your second home for more than 14 days, you may be eligible to write off some—or all—of your rental expenses. Your taxes may be simpler if you start treating your property as a business, rather than a second home.

Familiarize yourself with the vacation home tax deductions for your state, and keep detailed records. You’re required, by law, to keep a receipt for every item you deduct. Come tax time, you don’t want to search through shoe boxes or comb your credit card statements, so it’s always best to keep digital records if possible.

As an owner of a rental property, you should also consider holding on to your tax records for seven years. Be sure to maintain a record of the initial purchase price, capital improvements, and the depreciation deductions from the date of the initial purchase of the property and up to six years after you sell the home.

The IRS will also want to see a log that accounts for every day the home is used. Carefully document vacation rental days, personal use days, and days used for repairs and maintenance, which cannot be combined with days friends and family are using the home.

It’s also important to know that donated stays are deemed as personal use days, so they are not eligible for deduction nor can you receive a tax deduction for the value of the stay. However, if you rent your vacation home at market rate and donate the generated income to charity, you can deduct the business expenses and the charitable deduction.

How you use your home dictates the percentage of total expenses you can write off, and it impacts whether or not you have to pay income tax. Be diligent about how you balance and record personal and vacation rental days.


Five essential tools for vacation rental taxes

  1. Usage log: Detail personal, rental, and maintenance/repair days.
  2. Digital folder: Retain, organize, and back up photos of receipts. Double check against accounts you use frequently to supply the home, like Amazon.
  3. Financial log: Track payments for things like your property taxes and mortgage.
  4. Updates log: Document expenses and generally describe all repairs, maintenance, and improvements.
  5. Depreciable assets schedule: Show the reduced value of your assets because this is an expense that you may be able to write off.


Did you know?

At Vacasa, we do this work for you, preparing a full report on rental days versus personal days, cost of supplies, and income generated.

4. Vacation rental property improvements vs. repairs

To correctly prepare your taxes, you must understand what is and what is not eligible for deduction when it comes to home repairs. Believe it or not, it’s not always clear, since all the work you do on your home is not weighed equally.

While depreciation deductions can be intimidating and typically result in a tax loss on paper for vacation rental properties—even on properties that are generating income—they do lead to tax-free income. Don’t overlook them as you’re preparing your returns.

According to the IRS, improvement expenses contribute to the restoration, adaptation, or betterment of your property and are deducted over their useful lifetime rather than written off in full in the year of the expense.

If you’re adding an extra room, installing a water feature, or improving the quality of the property with a new security system, you’re making improvements. Contrast those improvements with fixing a broken staircase or replacing a broken window, which are considered repairs.

Did you know?

Don’t want to waste your time (including personal days) fixing up your vacation rental? We handle all maintenance and repairs for owners, so you don’t have to.

5. Consider local vacation rental tax rules

Once you’ve prepared your federal taxes, it’s time to consider how to file your local and state taxes.

Vacation rental tax rules can vary by region, state, and city. Avoid surprises, and familiarize yourself with all applicable tax authorities, as well as local regulations.

Depending on your vacation rental location, the amount of income you earn can impact everything from taxation to licensing. If you’re not working with a property manager who can explain the rules and tax structure, be sure to reach out to the local chamber of commerce with your questions.


Did you know?

As a full-service vacation rental property manager, we don’t just clean and maintain your property—we also handle the paperwork and logistics for the state sales and hotel taxes, and give you the information you need for state income taxes on your rental.


Disclaimer: This publication is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual's legal, tax, and financial situation is different, specific advice should be tailored to the particular circumstances. For this reason, you are advised to consult with your own attorney, CPA, and/or other advisor regarding your specific situation. The information provided here is for your use and convenience only. We have taken reasonable precautions in the preparation of this material and believe that the information presented in this material is accurate as of the date it was written. However, we will assume no responsibility for any errors or omissions. We specifically disclaim any liability resulting from the use or application of the information contained in this publication.

Vacation rental taxes FAQ

You’ll most likely need either Schedule E or Schedule C. You should use Schedule E if your vacation rental property is primarily used for supplemental income rather than a primary business. You should use Schedule C if you provide significant enough services for your guests that you could be considered a self-employed property manager.

You should keep a log tracking every day your home is used as a vacation rental, as well as every day used for maintenance or personal use. It’s also a good idea to keep receipts for all of your rental-related purchases and expenses.

According to this rule, if a property is your residence and you use it as a vacation rental for 14 days out of the year or fewer, you do not have to pay taxes on the rental income or report that income to the IRS. Learn more here.


Research for this report was gathered from various online resources, such as:

  1. Avalara, 10 easily overlooked tax deductions vacation rental hosts can claim
  2. IRS, IRS Tips about Vacation Home Rentals
  3. IRS, Residential Rental Property
  4. IRS, Topic Number 415 - Renting Residential and Vacation Property
  5. MarketWatch, How the new tax law affects vacation-home owners

*Survey methodology: Allison+Partners Research + Insights surveyed 1,006 U.S. respondents over the age of 18 who said they owned their primary residence, plus one or more additional residences, and who generated income from renting out one of their properties. The survey was fielded using the Qualtrics Insight Platform, and the panel was sourced from the Lucid exchange. Fielding was executed between Mar 4–Mar 11, 2019.