Short-Term Rentals Taxation: What Hosts Need to Know

1. General Tax Treatment

Income earned from renting out a property on a short-term basis is generally taxable and must be reported on your federal tax return. The tax treatment depends on several factors, including the number of days the property is rented, the amount of personal use, and the services provided to guests. If you rent your property for fewer than 15 days during the year, the rental income is excluded from gross income and does not need to be reported. However, if you rent for 15 days or more, the income is taxable, and the deductibility of expenses depends on the level of personal use and services provided to guests.

2. Reporting Requirements: Schedule E vs. Schedule C

  • Schedule E (Form 1040): Use this form to report rental income and expenses if you provide only basic services (such as utilities, trash collection, and cleaning of public areas). Most short-term rentals fall into this category.

  • Schedule C (Form 1040): If you provide substantial services to guests (such as daily cleaning, meals, or concierge services), or if the average rental period is seven days or less (or 30 days or less with significant services), the activity may be considered a business. In this case, report income and expenses on Schedule C, and the net income is subject to self-employment tax.

3. Deductible Expenses and Mixed-Use Rules

Deductible expenses for short-term rental properties include mortgage interest, property taxes, insurance, utilities, repairs, maintenance, management fees, advertising, commissions, depreciation, and travel expenses related to managing the property. If the property is used for both personal and rental purposes, expenses must be allocated between rental and personal use based on the number of days used for each purpose. If personal use exceeds the greater of 14 days or 10% of rental days, special ordering rules limit the deductibility of expenses, and any excess may be carried forward to future years.

4. Self-Employment Tax Considerations

Short-term rental hosts are generally not subject to self-employment tax unless they provide significant personal services to guests (such as daily maid service, meals, or amenities beyond basic maintenance). If only minimal services are provided (e.g., cleaning between guest stays), the income is not subject to self-employment tax. The key factor is whether the services go beyond what is required to maintain the property for occupancy.

5. The 14-Day Rule (“Augusta Rule”)

If you rent out your personal residence for fewer than 15 days during the tax year, you do not have to report the rental income, and you cannot deduct any rental-related expenses. However, you may still deduct mortgage interest and real estate taxes as itemized deductions, subject to the usual limitations. If you rent the property for 15 days or more, all rental income must be reported, and expenses must be allocated between personal and rental use, with possible limitations on deductibility.

6. Recordkeeping and Compliance

Regardless of the number of days rented, it is important to keep thorough records of rental income, expenses, and days of personal and rental use. This is especially important if you receive a Form 1099-K or 1099-MISC from a rental platform, even if the income is excludable under the 14-day rule.

This page provides a summary of the key federal tax rules for short-term rental hosts. State and local tax rules may also apply. For more detailed guidance, consult the relevant IRS publications and authoritative tax resources or click Contact to speak with a tax advisor experienced in cross-border issues.