Renting Your Home for FUN and PROFIT

"Travel makes one modest. You see what a tiny space you occupy in the world." -Gustav Flaubert

4-minute read

• The Vacation Rental Model
• 14: The Goldilocks Number
• Be Prepared If The IRS Visits
• Record Everything ... In Detail
• Upgrade To A Bed And Breakfast Model
• Go the Extra Mile
• Consider The "House Hack" Model
• Differentiate Your Rentals With Service
• The Hot Brewed Coffee Conclusion

The Vacation Rental Model

I'm talking about Airbnb®, VRBO® (Vacation Rentals), and the like. If you're not careful, you could create a tax and financial headache for yourself.

Have you ever wondered why vacation rental home services like Airbnb® or VRBO® are so popular? It's not because of refrigerators stocked with free food. Trust me ... I check (every time). Not surprisingly, the reason for their continued popularity is demand.

There are many reasons why that's the case, too many to go into here. The model works.

And one of the reasons it works is that it works for the hosts.

So, let's look at a few things you need to consider before you start making side income through renting out your home...

14: The Goldilocks Number

13 is too few, 15 is too many ... but 14 days is just right, and here's why:

The 14-day rule is a significant advantage. If you rent out a dwelling unit for 14 days or fewer, you don't have to report any rental income. This rule also applies if you only rent out one room of your dwelling unit. Not paying tax on a couple of weeks' worth of vacation rental income is a sweet deal while putting a roof over someone's head.

The 14-day-and-under rule is excellent if your area hosts a major event that brings in the masses. But if hosting increased visitors (for an increased amount of income and taxes) doesn't phase you, then book away for 15 days and beyond.

Terri and Jack have a cabin in Oakley, Utah, which is not too far from the Sundance Film Festival®. Their cabin sleeps eight and is perfect for a once-a-year cash bonanza.

Be Prepared If The IRS Visits

If the IRS comes knocking at your door because you didn't include the income on your return, all you'll need to do is prove the income was within the 14-day rule. You're all set.

Record Everything ... In Detail

Running a short-term vacation rental can be your training wheels for starting a business. Keeping detailed notes and records of the days you rent out the space is crucial. It's like having a roadmap to guide you through the tax implications, ensuring you're always on the right side of the 14-day rule.

If you do take the plunge to rent out your home beyond those 14 days, then you have the opportunity to deduct ordinary and necessary expenses. Towels, toiletries, and twenty-dollar bottles of wine to greet guests upon arrival can be deducted from your rental income when you make the shift to 15+.

Upgrade To A Bed And Breakfast Model

The more detailed you are at keeping records for this "bed and breakfast" business, the less you need to worry about scrounging up proof for the IRS.

It's important to note that if you don't fill out a W-9 form, which most vacation rental sites require at the beginning of operation, you will lose 28% of your rental income. This is a significant financial loss that can be easily avoided by completing the form.

Go the Extra Mile

Vacation rental services charge a service fee to their paying customers. You might have noticed this at checkout if you've ever booked online. When companies like Airbnb® send hosts (potentially you!) their 1099 form, which includes the amount of service fees accrued in addition to rental income for the year, hosts have the opportunity to deduct the host service fees if they rented out their space more than 14 days during the year.

Consider The "House Hack" Model

Lynn had a six-bedroom home in the Willowcreek Area at the mountain base with Snowbird Ski Resort®. His tenants lived in one bedroom and rented to ski resort employees during the ski season.

Differentiate Your Rentals With Service

As you open your space to others, we encourage you to be the hostess with the mostest. Offering amenities like breakfast and toiletries not only makes your guests feel welcome, but it could also earn you some tax benefits. The IRS might treat you as self-employed, which comes with its own set of benefits.

Self-employment means paying self-employment taxes in addition to income tax. But there are many other benefits from having your own "business", with other tax implications, etc. But that is an article for another day. :)

The Hot Brewed Coffee Conclusion

Lastly, in your quest to make a little extra income this year and serve travelers from all over, let us remind you that life is more than earning 5-star reviews ... it's mostly about walking into a room with hot coffee provided. We trust you'll make that happen. :)

I hope this helps. There are additional tax rules to be aware of. Check with your tax pro, who can help you apply the available deductions in the most tax-advantageous way possible. And:

BE THE ROAR not the echo®

Warmly, Janet, The Tax Wizard