How to Take Advantage of Short-Term Rental Tax Breaks This Year
Summary
This article explains how short-term rental owners can use paper losses from depreciation and other expenses to offset their W-2 or business income, potentially saving thousands in taxes. Hosts can qualify for this tax benefit if their average guest stay is less than seven days and they materially participate in managing the property. Baselane is recommended for staying organized.
Key Insights
- •You can reduce your taxable income by the paper loss from your Airbnb or vacation rental if your short-term rental qualifies as an active business.
- •To qualify for active status, you must demonstrate that you personally participate in managing and operating the rental. The IRS offers several ways to prove this, but the most common are spending more than 500 hours per year on the property, or spending over 100 hours and ensuring no one else spends more time than you.
- •Short-term rentals can be classified as active businesses, allowing paper losses from depreciation, repairs, or startup costs to offset active income.
Action Items
- ✓Track your time spent managing the property, down to the hour, to prove material participation if questioned during an audit.Effort: mediumImpact: high
- ✓Keep detailed records of your average guest stay, all income, and expenses, including accurate depreciation schedules and receipts.Effort: mediumImpact: high
Tools & Resources
- →Baselane: Baselane is an all-in-one banking and bookkeeping system built for landlords and short-term rental operators.
Common Mistakes
- ⚠Not tracking time spent managing the property is a common mistake that can disqualify you from tax benefits.
- ⚠If someone else spends more time on your property than you do, you do not qualify as materially participating.
- ⚠Relying entirely on property managers may disqualify you from the tax benefits.
More from Regulations & Compliance
Carson City, Nevada, is refining its short-term rental regulations. City supervisors are currently reviewing and modifying the local ordinance during a retreat. This review aims to address operational aspects, potentially impacting local hosts through new or revised rules, emphasizing compliance.
A 21-unit vacation rental in Dunedin, Florida, has been approved, signaling potential growth in the local short-term rental market. This approval could lead to increased accommodation options for tourists visiting the area. This news could also influence local regulations.
St. Louis aldermen have approved a short-term rental fee, though a legal battle over existing rules continues. This indicates a focus on regulating the STR market within the city. Hosts in St. Louis should be aware of these new fees, which may impact their profitability. Find out how this affects your STR business.
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