We know that tax season can be a headache for vacation home owners, but it doesn’t have to be that way. The key to keeping tax time stress-free—start early. Planning is everything. You’ll be less likely to miss deductions that you’re entitled to. If you have all the right paperwork ready to go when April rolls around each year, you’ll be able to quickly and easily file your taxes.
Here are the major things you can do now to streamline tax season.
When it comes to vacation rentals and taxes, the thing to remember is the 14-day rule. According to the IRS, if you rented out your property for less than 14 days in the tax year, the income you generate generally isn’t taxable. However, if you rented your home for 14 or more days, you’ll need to report that rental income when you file your taxes. You can also deduct some or all expenses related to your vacation home.
If you stayed at your property (more than 14 days per year or more than 10% of the time you rented it out), you’ll need to divvy up your expenses between the time you rented out the home to visitors and the time it was occupied for personal use. Personal use can refer to a time that you or any member of your family stayed in the rental for personal reasons. The IRS also refers to “use by anyone who pays less than a fair rental price” as personal use.
However, not all of your visits count as personal use. If you needed to stay in your vacation rental property to complete a bathroom repair or paint the walls, those types of visits don’t count toward personal use days. If this happens, remember to document your reason for being at the property in case of an audit.
First things first: understand the difference between the two.
Repairs refers to fixing something that is broken or damaged, like patching up a hole in the wall, replacing a broken window, or fixing a broken sink. In most cases, the IRS allows you to deduct repair costs on your taxes.
Making an improvement is doing something to add value to your vacation home, like a kitchen remodel or installing a hot tub or swimming pool. With the IRS, the cost of an improvement depreciates over time.
If you did any major vacation home renovations or repairs, hold onto those records. The IRS rules about depreciation and write-offs can be complicated depending on your situation. We recommend working with your tax professional to decide the best way to deal with big expenses based on your specific circumstances.
If you provide certain “substantial” services and amenities for your guests, the IRS might consider you “self-employed” in the vacation rental business. This means you’ll need to pay self-employment taxes that cover Social Security and Medicare. The types of extras that might earn you that self-employed status include:
If you think you might fall into this category, talk to your tax professional to see how it affects your filing this year.
You may be able to deduct some, most, or all the expenses for the upkeep and management of your vacation home. Tax deductible expenses can include utilities, housekeeping, HOA fees, and insurance. You can also deduct any travel expenses related to maintaining and running your short-term rental, such as traveling to do repairs and pick up supplies.
Whatever you spend on your vacation rental and your guests, keep your receipts and flawless records. It’s worth repeating—keeping accurate and comprehensive records will save you both time and stress when paying taxes.
Streamlined processes can make tax time easier. Instead of waiting until April to sift through paperwork, we recommend choosing a block of time weekly or monthly to get things in order. Also, consider using one dedicated credit card for any purchases related to your vacation rental. This will make it much easier to categorize your expenses appropriately. Most importantly, keeping digital receipts will help make sure nothing gets lost throughout the year.
Partnering with the right vacation rental manager can help you with those small, tedious details that can often be overlooked. For instance, Vacasa will automatically collect the appropriate taxes from each stay, plus provide a tax prep form, and annual rental and income data—all right at your fingertips in your online homeowner account.
Another bonus of working with a vacation rental property management company? Their management fee is often tax deductible.
No vacation rental is the same. Each one has different expenses and circumstances, and filing taxes can be difficult to navigate depending on your specific situation. We recommend working with a dedicated tax professional to help you make sense of the process. Plus, lean on the main tax resource for vacation home owners—IRS Publication 527. This guide provides the right framework for reporting your amount of rental income and deducting your vacation rental expenses.
Want more help managing the business side of your vacation home? We’re here to help.
Yes, Airbnb must issue Form 1099-K for all U.S. citizens who earned more than $600, effective January 1, 2022. For more information, see Airbnb’s page ‘When you might receive a tax form from Airbnb’.
In most cases, you can write off your Airbnb expenses. Some common tax deductible expenses can include appliances, furniture, maintenance and repairs, and even utility bills.
Yes, the IRS now requires all U.S. companies, including Airbnb, to report gross earnings for all U.S. users who make more than $600 in the calendar year. If you earned more than $600 in rental income from Airbnb bookings, they will issue you a Form 1099-K. Go to Airbnb for more about their tax reporting procedures.
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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.
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