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.
- •Short-term rentals can be classified as active businesses, allowing paper losses from depreciation, repairs, or startup costs to offset active income.
- •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.
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.
Watch Out For
- ⚠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.
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