Real Estate Investing Basics

3 Tax Tips for Vacation Rental Owners

Expertise: Landlording & Rental Properties
15 Articles Written
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[Disclaimer: This 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. Consult with your own attorney, CPA, and/or other advisor regarding your specific situation.]

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Everyone’s favorite time of year is upon us—tax time. Filing your taxes can become even more complicated when you add a vacation home or short-term rental to the mix.

If you are not using a professional property manager that handles vacation rental taxes on your behalf, there are a few key things you’ll want to consider when filing your vacation rental taxes.

Related: Should You Prepare Your Own Tax Returns?

letters taxes on wooden blocks with calculator and pen

Key Considerations When Filing Vacation Rental Taxes

1. Choose the correct form.

First, you’ll want to make sure that you are using the right form, which is typically going to be an IRS Schedule E or C. Which form you choose is based upon whether you are renting out your property as supplemental income (IRS Schedule E) or if you manage the property as your primary business activity (IRS Schedule C). For either form, you’ll need to have a list of documented expenses, all 1099s filed reporting contractor payments, property usage schedule, and gross rental income.

2. Track how the property is used.

Second, the amount you use your property will have an impact on how much you are able to write off. The 14-day rule means that you don’t pay taxes on the income you receive if:

  • (A) You rent out the property for less than 14 days per year.
  • or (B) You use the property yourself for 14 days or more.

However, if BOTH of the above statements are true, taxes become a bit more complicated.

The IRS will want to see a log of each day the property was in use, so it’s important to carefully document vacation rental days, personal use days, and days used for repairs and maintenance (which cannot be combined with days friends and family are using the home).

If you rent your property for more than 14 days, you may be able to write off a good portion of your expenses. In this case, vacation home tax deductions vary by state, so make sure you are familiar with the rules and keep detailed records. It’s required by law that you keep receipts for each expense you deduct, so create a system for tracking and filing your expenses so you aren’t scrambling to locate receipts.

taxes, rental property, real estate investor, rental income

3. Document rehab and repair expenses.

Last, while you are able to write off repairs to your vacation home (think fixing a leaky toilet or broken window) improvements are handled much differently. Instead of being written off in the year of the expense, they are deducted over the use of their lifetime. But don’t shy away from getting improvements down on paper—they are indeed tax free income.

In addition, it’s worth mentioning that having a property management company caring for your vacation home has a multitude of benefits. A full-service vacation rental property manager won’t just clean and maintain your property, they’ll also handle the paperwork and logistics for the state sales and hotel taxes and give you the information you need for state income taxes on your rental.

If you choose instead to self-manage, keep the above tips in mind when filing taxes.

[Disclaimer: This 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 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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Want to learn how you could be saving more on your real estate taxes using loopholes, deductions, and more? Get the inside scoop from Amanda Han and Matthew MacFarland, real estate investors and CPAs, in Tax Strategies for the Savvy Real Estate Investor. Pick up your copy from the BiggerPockets bookstore today!

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Are you getting the most out of the tax benefits available to investors?

Let’s discuss in the comment section below. 

Shaun Greer currently serves as the senior director of real estate at Vacasa and is responsible for the in-house real estate activity and broker/agent partnerships for the company. He brings more than 12 years of experience in mergers and acquisitions, joint ventures and public and private partnerships to this role. A licensed real estate agent, Shaun leads Vacasa Real Estate, a program launched within the parent company in 2018. Vacasa Real Estate is a network connecting leading real estate agents with buyers and sellers of vacation properties. Vacasa Real Estate currently partners with agents from over 80 leading real estate companies such as Berkshire Hathaway, Century21, Coldwell Banker, Keller Williams, RE/MAX and Sotheby’s. Shaun has been with Vacasa since 2015 and has held several positions including director of corporate development and mergers and acquisitions manager. When not cultivating relationships within the vacation rental industry or using data to support decisions, he is enjoying time with his family and outdoor sports.

    Joe J. Rental Property Investor from Dayton, OH
    Replied 6 months ago
    “The 14-day rule means that you don’t pay taxes on the income you receive if: (A) You rent out the property for less than 14 days per year. or (B) You use the property yourself for 14 days or more.” I knew about (A), but is (B) really true? If I stay in my vacation rental 14 days a year, the income from the other 351 is tax free??
    Edgar Mendez Chacon Rental Property Investor from Alexandria, Virginia
    Replied 6 months ago
    No, both have to be true. As noted above in the article: “In simplest terms, the 14-day rental rule means you don’t pay taxes on the income you receive from your short-term rental if BOTH of the following are true: You rent out the property for less than 14 days You use the property yourself for 14 days or more”
    Joe J. Rental Property Investor from Dayton, OH
    Replied 6 months ago
    Note that it’s been edited since I posted my above comment yesterday (I assume my comment is what prompted the edit, actually!) I directly copied and pasted from the article; as you can see “or” was right there. (But is no longer.)
    Paul Gugger
    Replied 6 months ago
    I have a vacation rental that is rented out by a vacation rental company. They also clean, exchange linens, toiletries, ect. I drive there (5 1/2 hours one way) to do repairs, replace furniture, paint and patch, I also have hired people or companies to do other work. Recently the washing machine went out so I got on line and bought a new one and had it delivered and I had someone from the rental company meet them there to let them in. I will be going there sometime soon to install a floor (myself). The reason I tell you all of this is because my tax person tells me I can’t use this rental to qualify as a “real estate professional” because I have a Management company. Again all they do is rent it and clean it. can you give me any clarification on this?
    Paul Gugger
    Replied 6 months ago
    I have a vacation rental that is rented out by a vacation rental company. They also clean, exchange linens, toiletries, ect. I drive there (5 1/2 hours one way) to do repairs, replace furniture, paint and patch, I also have hired people or companies to do other work. Recently the washing machine went out so I got on line and bought a new one and had it delivered and I had someone from the rental company meet them there to let them in. I will be going there sometime soon to install a floor (myself). The reason I tell you all of this is because my tax person tells me I can’t use this rental to qualify as a “real estate professional” because I have a Management company. Again all they do is rent it and clean it. can you give me any clarification on this?
    Edgar Mendez Chacon Rental Property Investor from Alexandria, Virginia
    Replied 6 months ago
    They are most likely referring to passive activity income and nonpassive activity income and what you can deduct on your taxes. This article explains more about it: https://www.ockeraccounting.com/can-an-owner-of-rental-real-estate-qualify-as-a-real-estate-professional/
    Paul Gugger
    Replied 6 months ago
    Thank you for your reply, that helps, I think I may not want to go that route on that property. Paul Gugger
    David Gradman from Libertyville, Illinois
    Replied 6 months ago
    “Last, while you are able to write off repairs to your vacation home (think fixing a leaky toilet or broken window) improvements are handled much differently. Instead of being written off in the year of the expense, they are deducted over the use of their lifetime.” With the TCJA, I believe this is technically incorrect. Won’t you be able to deduct any qualified improvements up to 100% based on the new bonus depreciation rules on new and used property, at least out to 2023.