The economy used to be a simpler place—either you owned a business, or you worked for someone else. In today's 'Sharing Economy', where VRBO, HomeAway, and Airbnb are common ways for the average person to make some extra cash, it's a bit more complex.
You may not think of yourself as a landlord, but if you offer your home or other property as a vacation or short-term rental, you are. And if the additional income isn't enough of a benefit, short-term rentals may also help you minimize your tax liability.
Similar to your regular income, the income you obtain through a short-term rental is generally subject to taxation. However, depending on how often you rent your property, there may be expenses that you can deduct, or in some cases, you may not have to pay tax on the income at all.
The Less-Than-15-Day-Rule
If you rent your personal residence for less than 15 days per year, you won't be required to report the activity on your tax return, and therefore will not pay taxes on the income. Of course, if this is the case, you also can't deduct any expenses incurred in renting the property.
If you rent your personal residence for more than 15 days per year, you'll need to report the income on your tax return, but you may also be able to deduct some of your related expenses. For example, you might be able to deduct a portion of renovation costs, insurance, utilities, and mortgage interest. Your CPA can help you determine any deductions that apply to your rental.
Recordkeeping
Regardless of how many days you rent your property during the year, it's important to keep a detailed record of your rental activity. If you rent your residence for more than 15 days, you'll want to keep track of who has rented the property, their check-in and check-out dates, any personal expenses you've sustained for the property, and any "business" expenses, or expenses that were directly related to the rental of the property. This will make it easier to report your rental income at the end of the year, and determine potential deductions.
If you rent your property for less than 15 days, you should keep track of the number of days of rental use vs. personal use. Although you won't necessarily need to report the income on your tax return, if you use a service like Airbnb, HomeAway, or VRBO, which are required to report all rental activity to the IRS, you may need to verify your rental details at tax time.
Your CPA can help you determine how to report your rental income and any expenses you may be able to deduct. If you have any questions about short-term rentals and how they may impact your taxes, feel free to leave a comment below, or contact me directly anytime.
