Can You Write Off Mortgage Costs for Your Airbnb Business?
Understand how mortgage costs factor into your Airbnb business taxes, including expense allocation, recordkeeping, and IRS guidelines for deductions.
Turning your home into an Airbnb rental can generate extra income, but it also comes with tax considerations. A common question is whether mortgage costs can be deducted as a business expense. The answer depends on how the property is used and how expenses are reported to the IRS.
Criteria for Rental Expense Deductions
The IRS allows rental property owners to deduct necessary expenses for maintaining and operating the rental, including mortgage interest, property taxes, insurance, maintenance, utilities, and depreciation—provided they are directly related to the rental activity and properly documented.
Mortgage interest is deductible under the Internal Revenue Code but only for the portion of the home used for rental purposes. The Tax Cuts and Jobs Act (TCJA) of 2017 placed a cap on mortgage interest deductions for personal residences, but rental properties are not subject to the same limitations. If the home is rented full-time, the full mortgage interest can typically be deducted.
Depreciation allows property owners to recover the building’s cost over time. Under IRS guidelines, residential rental properties are depreciated over 27.5 years using the Modified Accelerated Cost Recovery System (MACRS). This applies only to the structure, not the land, and requires an accurate calculation of the property’s basis, which includes the purchase price, closing costs, and capital improvements.
Differentiating Personal vs. Rental Use
The tax treatment of mortgage costs depends on how the property is used. If the home is rented full-time with no personal use, it is classified as a rental property, and expenses can generally be deducted in full. However, if the owner occupies the home for part of the year, the IRS considers it a mixed-use property, requiring a different approach to deductions.
A property is categorized as a personal residence if it is used for personal purposes for more than 14 days or more than 10% of the total days it is rented at fair market value, whichever is greater. If this threshold is exceeded, mortgage interest and property taxes must be allocated between personal and rental use. The portion related to rental activity can be deducted as a business expense, while the personal share follows standard homeowner deduction rules.
Short-term rentals also fall under the “14-day rule,” which allows homeowners to rent out their property for up to 14 days per year without reporting the income or deducting expenses. This exemption is common in high-demand areas during major events. If the property is rented for longer than 14 days, rental income must be reported, and expenses must be allocated accordingly.
Allocating Mortgage Costs
Determining the deductible portion of mortgage costs requires a clear method of allocation. Since many short-term rental hosts use their property for both personal and business purposes, expenses must be divided based on the percentage of time the home is rented. The IRS allows two primary methods for this calculation: the days-rented method and the square footage method.
The days-rented method calculates the deductible portion by dividing the number of days the property was rented by the total days it was used. For example, if a home was rented for 120 days and used personally for 60 days, the rental use percentage would be 66.7% (120 ÷ 180). This percentage would then be applied to mortgage interest and other eligible expenses.
The square footage method applies when only part of the home is rented, such as a single room or an accessory dwelling unit. In this case, the percentage is based on the portion of the home’s total livable space dedicated to rental use. If a 2,000-square-foot home has a 400-square-foot area exclusively rented out, 20% (400 ÷ 2,000) of mortgage interest and other applicable expenses could be deducted.
Documentation and Recordkeeping
Maintaining accurate records is necessary for substantiating deductions. The IRS requires documentation to support expense claims, and failure to do so can result in disallowed deductions or penalties.
Records should include receipts, invoices, bank statements, and other documents verifying payments for mortgage interest, insurance, repairs, and other rental-related expenses. A well-organized system—whether digital or physical—streamlines tax preparation. Accounting software such as QuickBooks or Xero can automate transaction tracking and generate reports that simplify expense categorization.
A separate bank account for rental income and expenses enhances financial clarity. Commingling personal and rental transactions makes it difficult to distinguish deductible business expenses. Using a dedicated account simplifies bookkeeping and provides a clear financial trail in case of an IRS inquiry.
Tax Filing Implications
Properly reporting rental income and expenses ensures compliance with IRS regulations. Airbnb hosts must accurately categorize their rental activity and use the correct tax forms to avoid errors that could trigger audits or penalties.
If the property is rented on a short-term basis but the owner provides substantial services, such as daily cleaning, meals, or concierge services, the IRS may classify the rental as a business. In this case, income and expenses should be reported on Schedule C (Form 1040), and self-employment taxes may apply. If the property is rented without significant services, it is generally considered a passive rental activity, and income and deductions should be reported on Schedule E (Form 1040). Unlike Schedule C filers, those using Schedule E do not pay self-employment tax but are subject to passive activity loss limitations, which may restrict the ability to deduct losses against other income.
State and local tax requirements also play a role in tax filings. Many jurisdictions impose occupancy taxes, similar to hotel taxes, which must be collected from guests and remitted to the appropriate tax authority. Some states require Airbnb to collect and remit these taxes on behalf of hosts, while others place the responsibility directly on the property owner. Failure to comply with local tax laws can result in fines and back taxes, making it important for hosts to research and adhere to their specific state and municipal regulations.