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
The Green Bay Common Council will consider changes to its short-term rental ordinance. This could involve new regulations or revisions to existing rules. Hosts in Green Bay should stay informed about potential updates and how they might impact their operations.
Local commissioners denied a short-term rental application, suggesting potential regulatory hurdles for new STR operations. This indicates increasing scrutiny on STRs within this locality. Hosts should be aware of potential local restrictions and permitting requirements before investing in or launching short-term rentals.
The Green Bay Plan Commission is updating its short-term rental ordinance. Details are not given, but this news signals potential changes for hosts in the area. Hosts should stay informed about the new regulations to ensure compliance and avoid penalties.
Curated by Learn STR by GoStudioM