Filing taxes for your vacation rental business can be confusing and overwhelming if you’ve never done it before. Still, we have good news: There are very likely a few areas where you can get money back, thanks to tax-deductible vacation rental expenses. In this vacation rental tax deduction guide, we’ll go over the basics of what a tax-deductible expense is and what the requirements are. Then, we’ll cover ten tax-deductible vacation rental expenses you should know about.
Contents
What Is a Tax-Deductible Expense?
The definition of a tax-deductible expense, according to the Corporate Finance Institute, is “any expense that is considered ‘ordinary, necessary, and reasonable’ and that helps a business to generate income.” An ordinary expense is an expense that is common and accepted in your particular industry (in this case, the vacation rental industry). Meanwhile, a necessary expense is an expense that is helpful and appropriate for your business or trade.
Tax-deductible expenses are typically deducted from the company’s income before taxation. Some expenses can be totally deducted, while others are only partially deducted. Allowable expenses usually include advertising and marketing, transportation and travel, interest, and insurance. Fuel costs, administration and management fees, maintenance and repair work, office-related expenses, and office supplies are also allowable. A few other expenses that are typically tax-deductible are legal fees, accounting fees, workers’ salaries, and utilities.
Requirements
In order to qualify for these tax-deductible expenses, you must rent your vacation rental to guests for at least 14 days out of the year. As long as you rent it out for 14 days or more, then your vacation rental qualifies as a business. If you rent it out for less than 14 days, then it is not considered a business, and these tax-deductible expenses do not apply.
However, there’s another stipulation to take note of. You can only stay at your vacation rental for personal use for 14 days or less throughout the year (or 10% of the total days you rent it to others at a fair rental price). Personal use refers to a few different situations.
If you or any other person who has an interest in the property stays there, that qualifies as personal use. In addition, if any members of your family stay at the property, that’s also personal use, unless they pay the fair rental price and use the property as their main residence.
Another situation that’s considered personal use is anyone who stays at the rental and pays less than the fair rental price. However, if you’re staying at the vacation rental for maintenance or repairs rather than for a vacation or leisure time, that does not count as personal use. However, you’ll need to provide proof that your stay was work-related.
Be sure to keep track of all of your expenses, either with receipts or with an accounting program. Otherwise, you won’t be able to take advantage of these tax deductions.
10 Tax-Deductible Vacation Rental Expenses
Let’s delve into the ten most significant tax-deductible expenses for vacation rentals, providing you with a comprehensive understanding of each item and its potential impact on your tax liability. From maintenance and repairs to marketing and insurance, we will cover it all, equipping you with the knowledge to make informed financial decisions for your vacation rental property.
1. Cleaning, Maintenance, and Repairs
You’ll probably be happy to learn that rental property cleaning services are considered a tax-deductible expense. If you have a cleaning company that comes by and cleans your vacation rental after your guests check out, the cost for this service is tax-deductible. So are the professional service fees and supply costs associated with maintenance and repairs.
This could be anything from fixing the heater at your vacation rental to enlisting the help of a plumber to add foam insulation to your pipes before winter hits. Anytime you need to pay a professional to come in and do some cleaning, repairs, or maintenance work, be sure to keep track of the expenses, and they may be deductible come tax season.
2. Transportation and Travel Expenses
Suppose your vacation rental property is your principal place of business. In that case, you may be able to deduct transportation expenses that are spent on managing and maintaining the property or collecting your rental income. These expenses can include airfare, mileage, meals, and accommodations, as well as travel to attend conventions and seminars that relate to your vacation rental business.
3. Vacation Rental Insurance
Insuring your vacation rental against natural disasters and other liabilities, as well as simply protecting your assets, can be pricey. However, it’s a totally necessary expense, and it can potentially be tax-deductible. Remember to save your vacation rental insurance bills so that you can deduct this expense when tax time comes around.
4. Utilities and Taxes
Think about how much you spend on utilities plus local and state taxes each year. Electricity, water, internet, gas, cable, trash removal, and other utilities add up pretty quickly, and with taxes thrown in, you’re looking at thousands of dollars every single year. But you’re in luck, because these bills can be deducted, at least for the months that you rent out your property. You can enjoy some significant savings in this area!
5. Homeowners Association Fees
If you’re part of a homeowners association or condo association, you’re probably familiar with the necessary fees that cover pool maintenance, landscaping, and snow removal. Well, keeping track of your annual dues is absolutely worth it, because they may be tax-deductible and able to be written off.
6. Property Management Fees
Do you work with a vacation rental property management company, or have you hired a property manager? The fees and commissions associated with their marketing, guest services, booking, and property maintenance can typically be classified as tax deductions.
7. Marketing and Advertising
Many vacation rental owners list their rental properties on various channels in order to get as many bookings as possible. And while most of these sites don’t charge flat fees, what they do take is a percentage of every booking to serve as a commission. These commissions are often referred to as service fees, and they’re typically taken off of your guests’ pay for their stay. You’ll want to keep track of all the fees you’re paying on sites like Vrbo, Airbnb, Booking.com, Expedia, and others, because these are considered marketing costs, and they can be tax-deductible expenses. In fact, any of your marketing and advertising costs can qualify as deductible expenses on your taxes.
8. Accounting Fees
Filing your personal taxes yourself is relatively simple, but accurately completing the tax paperwork for your vacation rental is quite the undertaking unless you have a background in accounting. It’s always best to work with an accountant or tax professional to file your vacation rental business taxes. Their fees are often deductible, so it’s absolutely worth it to work with a professional and save yourself the headache of trying to sift through all of the vacation rental tax codes on your own.
9. Vacation Rental Supplies, Furniture, and Appliances
Furnishing your vacation rental, purchasing and replacing appliances, and providing plenty of amenities is a huge investment. But luckily, all of these purchases can potentially count as tax deductions. This category also covers pool maintenance expenses and other types of amenity maintenance.
10. Depreciation
Depreciation, or the decrease in value of your rental, is actually one of the most common expenses that vacation rental owners deduct from their taxes. It’s not a tangible expense, but is referred to as a “paper loss.” As soon as your vacation rental is ready to rent out to guests, you can begin to deduct for depreciation.
Main Takeaways
- A tax-deductible expense is any ordinary, necessary, and reasonable expense that helps a business generate income.
- Tax-deductible expenses are deducted from the company’s income before taxation. Some can be completely deducted, and others can only be partially deducted.
- To qualify for tax-deductible vacation rental expenses, you must rent out your vacation rental to guests for at least 14 days each year. In addition, you can only stay at the vacation rental for personal use for 14 days or less each year.
- To take advantage of these tax deductions, you must keep track of all your expenses and have proof of them.
Here are ten tax-deductible vacation rental expenses with brief explanations:
- Cleaning, maintenance, and repairs: Any costs associated with a cleaning company or professional maintenance and repairs, such as fixing your air conditioner, may be tax-deductible.
- Transportation and travel expenses: If you have to travel to your vacation rental to manage or maintain it, your airfare, mileage, and accommodations may be tax-deductible.
- Vacation rental insurance: Your liability coverage and protection from natural disasters can also qualify as a deduction when tax season comes around.
- Utilities and taxes: Electricity, water, cable, garbage removal and internet, plus local and state taxes, can be tax-deductible expenses.
- Homeowner association fees: The annual dues, which usually cover pool maintenance, snow removal, and landscaping, may be tax-deductible.
- Property management fees: If you pay a vacation rental property management company to take care of your marketing, bookings, customer communication, and other tasks, the cost may be tax-deductible.
- Marketing and advertising: Any fees you pay to Airbnb and other listing sites can qualify as marketing and advertising costs. These, in addition to any other marketing and advertising expenses, can often be deducted from your taxes.
- Accounting fees: It’s rare to find a vacation rental owner who files the taxes for their vacation rental business themselves, since the tax codes are long and complicated. Luckily, you can typically count accounting fees as a tax-deductible expense.
- Vacation rental supplies, furniture, and appliances: Furnishing your vacation rental and filling it with great amenities is expensive, but these expenses are often considered deductible from your taxes.
- Depreciation: Although this is a paper loss and not a tangible expense, it’s one of the most commonly written-off vacation rental expenses. It can be written off as soon as your vacation rental is prepared to be rented out.
