How to Report Short Term Rental Income

Short-term rental income earned through platforms like Airbnb or Vrbo is taxable and must be reported to the Internal Revenue Service (IRS). The reporting method and taxes owed depend on factors like the services provided to guests and the number of days the property is rented versus used personally. This classification determines which tax forms to use and what deductions are allowed.

Determining Your Rental Activity Classification

The IRS classifies short-term rentals as either a passive rental activity or a trade or business. This distinction, which affects your tax forms and whether you owe self-employment taxes, depends on if you provide “substantial services” to guests.

Substantial services are for the guest’s convenience and are not required for basic lodging. If you provide hotel-like amenities, the IRS considers your rental a business, and you must report income and expenses on Schedule C (Form 1040), Profit or Loss from Business. Examples include:

• Regular cleaning during a guest’s stay
• Catered meals
• Guided tours
• Arranged transportation

If you only provide minimal services, your activity is classified as a rental. For this more common classification, you will report income and expenses on Schedule E (Form 1040), Supplemental Income and Loss. Minimal services include:

• Cleaning between guests
• Providing linens and towels
• Furnishing utilities
• Collecting trash

Calculating Reportable Income and Deductible Expenses

Your gross rental income is the total of all payments received from guests, including the nightly rate, cleaning fees, and pet fees. This is the full amount paid by the guest before the rental platform deducts its service fees or other costs.

From this gross income, you can subtract expenses directly related to the rental. Keeping records for all expenses is necessary to support your claims. Common deductions include:

• Mortgage interest and property taxes
• Homeowners insurance and utilities
• Platform service fees
• Repairs and maintenance
• Supplies like toiletries and paper goods
• Professional fees for accounting or legal advice

If you also use the property personally, you must allocate expenses between personal and rental use based on the number of days for each purpose. For example, if your property was rented for 90 days and used personally for 30 days, you could deduct 75% (90 rental days / 120 total use days) of indirect expenses like mortgage interest. Direct expenses, such as cleaning fees between guests, are fully deductible.

A provision known as the “14-day rule” applies if you rent your property for 14 or fewer days during the year. Under this rule, you do not have to report the rental income, but you also cannot deduct any rental-related expenses. This is beneficial for those who rent out their property for a short time, such as during a major local event.

Depreciation, which accounts for the cost of wear and tear on the property, is another deduction. You can only deduct depreciation for the portion of the property used for rental purposes and for the period it was available for rent.

Completing Federal Income Tax Forms

Rental platforms often issue a Form 1099-K, which reports the gross amount of payments processed for you. The amount in Box 1a of this form is your gross revenue and must be reported on your tax return before you subtract expenses like platform fees.

If your activity is classified as a rental, you will use Schedule E. On this form, you report your gross rental income and then list your deductible expenses by category. The form also has a line to report your calculated depreciation deduction.

If your activity qualifies as a business, you will report your finances on Schedule C. The net profit from a business is subject to self-employment tax, which covers Social Security and Medicare contributions. This tax is calculated on Schedule SE (Form 1040).

Filing and Paying Associated Taxes

After completing your forms, you must file your return with the IRS. The most common method is to e-file using tax preparation software, which can guide you through the process.

If your rental activity results in a tax liability of $1,000 or more for the year, you are required to pay estimated taxes. These quarterly payments cover your income and self-employment tax obligations and are calculated using Form 1040-ES. The due dates are:

• April
• June
• September
• January

Beyond federal income tax, owners must consider state and local obligations. Most states and many municipalities impose an occupancy tax, also called a lodging or hotel tax, on short-term rentals. These taxes are collected from guests and paid to the local tax authority. The rates and rules vary by location, so you must research the requirements for your property’s jurisdiction.