1. Introduction: Who This Book Is For

2. How Short-Term Rental Hosts Are Taxed

• Income Taxes
• Social Security and Medicare Taxes
• Net Investment Income Tax
• Local and State Occupancy Taxes

3. Tax-Free Short-Term Rentals

• Short-Term Rentals That Qualify for Tax-Free Treatment
• Effect of Qualifying for Tax-Free Treatment

4. Deducting Your Expenses: The Basics

• What You Can Deduct
• How Your Tax Status Affects Your Deductions
• Deductions for Multiple Owners

5. Operating Expenses

• What Are Operating Expenses?
• Direct Expenses Deductible in Full
• Operating Expenses That Must Be Allocated

6. Repairs

• Repairs vs. Improvements
• Deducting Repairs for Short-Term Room Rentals
• Three Safe Harbors
• Repair vs. Improvement: Analysis Under the Regulations
• How to Deduct Repairs and Maintenance
• When Guests Pay for Repairs
• Properly Documenting Repairs

7. Deducting Long-Term Assets

• Depreciating Property Used in Your Rental Activity
• How to Depreciate Real Property
• Personal Property

8. The Pass-Through Tax Deduction

• Your Rental Activity Must Be a Business
• Your Rental Activity Must Be a Pass-Through Business
• You Must Have Qualified Business Income
• You Must Have Taxable Income
• Calculating Your Pass-Through Deduction
• Taking the Pass-Through Deduction
• Strategies to Maximize the Pass-Through Deduction

9. Prorating Your Deductions

• Direct Expenses Are Fully Deductible
• Expenses That Must Be Prorated
• Calculating Personal and Rental Days

10. Reporting Rental Income on Your Tax Return

• Most Hosts Use Schedule E to Report Rental Income
• Schedule E Line by Line
• Completing Schedule E When You Have a Rental Loss
• Hosts Who Don’t File Schedule E

11. Filing IRS Form 1099 Information Returns

• When Someone Else Reports Your Rental Income to the IRS
• Reporting Payments You Make to ICs and Other Workers
• Backup Withholding for Independent Contractors

12. Deducting Losses for Short-Term Rentals

• What Are Rental Losses?
• Which Rental Loss Rules Apply
• Vacation Home Rules
• Hotel Business Rules
• Regular Rental Activity Rules
• Annual Loss Limits

13. Record Keeping

• What Records Do You Need?
• Tracking Income and Expenses
• Supporting Documents for Your Expenses
• Property Usage Record

Index

Introduction: Who This Book Is For

This book—the first of its kind—is a guide to the income tax issues faced by people who rent out all or part of their homes to short-term guests. We refer to such people as “short-term rental hosts.” The information here applies to rentals arranged through online rental platforms, such as Airbnb, VRBO, FlipKey, and others. It also applies to short-term rentals made through Craigslist or made offline through local advertising, word of mouth or any other means.

This book provides the tax knowledge rental hosts need, whether they rent out all or part of their main home, vacation home, or any other property they own or rent, like a cottage or separate unit attached to their home. The tax rules for short-term rental hosts are different from those that apply to traditional landlords. If you’re a traditional landlord who rents property full time to long-term tenants (or if a short-term guest ends up being a long-term tenant), refer to Every Landlord’s Tax Deduction Guide, by Stephen Fishman (Nolo), for in-depth guidance on all the tax issues you face.

Taxes are complicated enough for traditional landlords, but they can be even more difficult for short-term rental hosts. Online rental platforms provide little or no tax guidance—they’re in the rental business, not the tax advice business. Many tax professionals have little understanding of the unique tax problems posed by short-term rentals. This book is intended to fill that void. It provides all the information short-term rental hosts need to minimize their taxes and stay out of trouble with the IRS, including:

• when short-term rentals are tax free
• how to identify, allocate, and maximize short-term rental deductions
• how to do IRS reporting for short-term rentals
• how to deduct short-term rental losses
• how to complete your tax return (IRS Schedule E), and
• how to keep records for short-term rentals.

More than ever, you need guidance when it comes to taxes for your short-term rental activity. In 2017, Congress enacted the most sweeping changes to the tax code in more than 30 years when it passed the Tax Cuts and Jobs Act (TCJA), which took effect in 2018. In an effort to stave off economic devastation in the wake of the COVID-19 pandemic, Congress revised the nation’s tax laws yet again for 2020 and 2021, temporarily suspending many of the harshest provisions of the TCJA. In 2022, most of these temporary measures ended. For better or worse, U.S. tax law has entered the post-COVID era. We explain how all these changes affect hosts.

Even if you work with an accountant or other tax professional, you need to understand these tax issues. Doing so will help you provide your tax professional with better records, ask better questions, obtain better advice, and, just as importantly, evaluate the advice you get from tax professionals, websites, and other sources. If you do your taxes yourself, your need for knowledge is even greater. Not even the most sophisticated tax preparation software provides the insights and specialized guidance you’ll find in this book.

Minimizing the taxes you pay on your rental income can make your hosting activity far more profitable—indeed, it can spell the difference between making and losing money. The time to start planning to reduce the taxes you’ll need to pay on your short-term rental income is now. You can’t wait until April 15—by then it will be too late to implement most of the tax savings strategies and procedures covered in this book.

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We hope you enjoyed this sample chapter. The complete book is available for sale here at Nolo.com.