As the old adage goes, there’s nothing certain in life except death and taxes. It’s safe to say that nobody looks forward to either of those things, but alas, they’re totally inevitable. These vacation rental tax deductions will help make April 15th a little more bearable.
To make things easier on yourself at tax time, we’ve compiled a list of 11 deductions you can use to reduce the amount of federal taxes you’ll have to pay when the time comes. Some of these tips are specific to the United States, but most would be applicable in other countries, as well.
Note that if you’re a vacation rental owner, before you file taxes for your vacation rental property you should determine if your property qualifies as a full time rental, which would allow you to maximize your deductions.
If you fall within the 14-day rule - meaning you rent your property out for at least 14 days of the year - you are exempt from paying income tax on the property.
To get all of the details around this, speak with a tax accountant, or at the very least, check out this informative article from HR Block to determine how your rental is classified by the IRS.
11 overlooked vacation rental tax deductions
1. Marketplace fees. When you have your properties listed across channels like Airbnb and HomeAway, you’re charged a host service fee per reservation, or you pay for a yearly subscription. Keep track of these fees because they are completely tax deductible.
2. Insurance premiums. Keep careful documentation of your insurance premium receipts. You can claim deductions against the cost of the premiums that cover your vacation rental.
3. Property taxes and mortgage interest. The full amount that you pay on your vacation rental property taxes may be deductible at tax time. You can also claim any mortgage interest paid on your vacation rental business as an expense.
4. Credit card and loan interest. When you borrow money to pay for expenses related to your vacation rental business, you can deduct the cost of interest you pay on those debts.
5. Cleaning, maintenance, and repairs. Any money that you spend on your vacation rental maintenance can be deducted as an expense, from lightbulbs and security systems to wifi systems and deck boards.
6. Utility costs. Utilities are a large cost of doing business when managing vacation rentals. Luckily, you can expense all of your utilities, from internet and phone to electricity and water. This can add up to big savings at tax time.
7. Advertising fees. The money you spend on marketing your property is tax deductible. Think about what you spend each year on website costs, photography, ad placement, Lodgify fees, etc.. You can get some of that back on your business taxes.
8. Cost of supplies. Towels, sheets, toilet paper and more. Even a single vacation rental requires supplies that end up costing hundreds, if not thousands, of dollars over the course of the year. Luckily, you can save all of those receipts to claim as business expenses.
9. Major improvements. If you’ve made major improvements to your vacation rental property, such as a security system, air conditioning, updated electrical, or roof replacement, you may be able to write off some of the cost. This is thanks to changes to Section 179 of the US tax code.
10. Bonus depreciation. Changes in American tax law offer hosts a 100% bonus depreciation, meaning you may write off in a single year, the full cost of appliances, furniture, or any other long-term personal property you buy for your rental business from September 27, 2017 through to December 31, 2022.
11. Pass through business tax deduction. Starting with the 2018 tax year, if you’re a residential landlord who owns rental property through a “pass-through” entity, you might be able to deduct 20% of your net rental income as a personal tax deduction.
Hopefully this list of tax deductions for vacation rental properties will help you to save money at tax time. The best rule to follow, is to save every single receipt and keep track of everything related to your rental business. It’s better to have too much paperwork for your accountant than not enough!
Note: The information above is intended for informational purposes only; it is not tax advice and should not be relied upon as such. If you need tax advice, you should consult a licensed accountant or tax attorney in your area.