Vacation rental properties have become increasingly popular in recent years, with platforms like Airbnb and VRBO making it easier than ever to list and rent out your property. However, with this extra income comes the question of how it is taxed. In this article, we will explore the basics of vacation rental taxation.
What is Vacation Rental Income?
Vacation rental income refers to any money earned from renting out a property that is not your primary residence. This can include renting out an entire home, a room in your home, or even a portion of your property for camping or RV use.
Do I Need to Report Vacation Rental Income?
Yes, vacation rental income must be reported on your tax return. This includes any income earned from short-term rentals through platforms like Airbnb or VRBO as well as long-term rentals.
How Is Vacation Rental Income Taxed?
The taxation of vacation rental income depends on several factors:
Rental Days vs Personal Use Days
If you rent out your vacation property for more than 14 days per year and use the property for personal use for less than 14 days or 10% of the total days rented (whichever is greater), you will report the rental income on Schedule E of your tax return and can deduct expenses related to renting the property such as cleaning fees, advertising fees and repairs.
If you rent out your vacation property for less than 14 days per year and use it for personal use for more than 14 days, you do not need to report the rental income on your tax return.
Taxable Income
The taxable income from renting out a vacation property is calculated by subtracting all allowable expenses from the total rental income received. These expenses can include mortgage interest, property taxes, insurance costs, maintenance expenses, utilities and HOA fees.
- Certain expenses like property taxes and mortgage interest are deductible regardless of how many days the property is rented.
- Other expenses such as utilities, HOA fees and repairs can be deducted only if the property is rented for at least 14 days per year.
State and Local Taxes
In addition to federal income tax, vacation rental income is also subject to state and local taxes. Each state has its own rules regarding the taxation of vacation rental income, so it’s important to research your state’s specific laws.
Conclusion
Vacation rental income can be a great source of extra income, but it’s important to understand how it is taxed. Make sure to keep accurate records of all rental income and expenses related to renting out your property. If you’re unsure about any aspect of vacation rental taxation or need help preparing your tax return, consider consulting with a tax professional.
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