Vacation home tax rules you should know

Vacation rental tax rules are complex. That’s because Uncle Sam’s bill depends on how much time you spend renting your home to guests versus using it yourself. Let’s walk through most-asked questions about the primary vacation rental tax rules you should know this year. And keep in mind—we’re not CPAs, so we always recommend working with a professional tax adviser if you’d like to avoid making some new friends at the IRS.

Key takeaways

• Your tax bill depends on the amount of time you (or your friends and family) stay at your vacation home vs. how often you rent it.
• If you rent your home for 14 days or less per year, you won’t have to pay vacation rental taxes—though you won’t be able to deduct any rental-related expenses, either.

How are short-term rentals taxed?

Short-term rentals are subject to the 14-day rental rule, which determines how much you owe and the tax deductions you can claim.

According to the IRS, your vacation home is classified as a residence (rather than a business) if you use it yourself for more than the greater of:

• 14 days per year
• 10% of the total days you rent it to others at a fair rental price

Your home’s tax status changes based on those thresholds. The key thing to know is that whether your home is considered a business—and how many deductions you can make—depends on exactly how long you stay at your vacation home versus rent it to guests.

For example, if you typically rent your home 20 days per month but vacation there for the entirety of August, the IRS will still consider your home a personal residence—with a caveat. That caveat means you may write off certain business expenses, but not all the costs associated with renting.

However, if you take one 10-day family vacation per year at your home and rent the rest of the time, the IRS classifies your home as a business—so you can write off all relevant business expenses.

Each situation requires either Schedule A, E, or C. We recommend working with your tax adviser to pinpoint which information you’ll need to submit to the IRS, along with any tax deductions you may make in your situation.

How do I avoid paying taxes on a rental property?

You’ve probably heard it before. Life’s only certainties are death and taxes—vacation rental income taxes included. How much you pay depends upon the amount of time you use your home personally. But as the chart above suggests, some usage scenarios may not require you to pay income tax on your rental income at all!

Do you have to pay taxes on Vrbo income?

The information Vrbo provides on taxes depends on your situation. Read up about Vrbo tax policies on their website to get the most accurate and up-to-date information.

Learn more about Vrbo and taxes >

How do taxes work with Airbnb?

Like Vrbo, Airbnb has an in-depth FAQ on their tax policies.

Learn more about Airbnb and taxes >

How many days can I use my rental property?

There’s no “wrong” answer here—you can stay at your home as often as you like. But there are tax consequences to the amount of time you spend there.

The IRS sees personal use as the key factor when determining if your home is a residence or a business enterprise. And “personal use” goes beyond a weekend getaway or a family gathering now and then—it also includes instances like:

• Friends or family members staying rent-free
• House swaps with other vacation home owners
• Any other time where a person stays at your home for less than a fair rental price

When you manage with Vacasa, we keep track of how often you’ve stayed at your home —and provide all the information you and your tax professional will need to fill out the right form come filing time.

What are fair rental days on Schedule E?

“Fair rental days” are the number of days your home was actually rented by a party, not the total number of days it was available to rent.

As a supplement to Form 1040, Form Schedule E asks about fair rental days to determine if your property is considered a business or a residence in the eyes of the IRS.

How many days can I rent my property without paying taxes?

The IRS notes that there’s a special rule if you use your home as a residence and rent it for 14 days or fewer per year. In this case, you don't need to report any of the rental income (but you also don’t get to deduct any rental expenses).

Does buying a vacation home help with taxes?

Buying a vacation rental property can be a smart financial decision. A real estate investment that can actively earn you income while building equity seems like a good deal, right?

But let’s be clear: taking on another asset means that you’ll likely pay more in taxes. That said, vacation rentals have access to special tax breaks that ease the burden of ownership and stewardship.

Tax laws around rental income have recently changed, but there are still opportunities to make smart deductions. Up to a limit and within the correct circumstances, vacation rental owners may deduct parts of their mortgage interest rate, interest on home equity loans used for improvements around the house, and property taxes. And don’t forget: your home’s classification under the IRS’s 14-day rule affects what you’re allowed to deduct.

These deductions can be extremely complex. So we advise you to speak to a tax professional to understand if the kind of investment you have in mind will work for your unique financial situation.

Is buying a vacation home a good investment?

We think so. Learn more about investing in vacation rentals—or reach out to Vacasa Real Estate to learn how we help people buyers and agents.

A great manager can help make tax time a cinch.

Vacasa’s full-service management makes getting all the information you need around tax time easy. We collect state and local taxes on your behalf, organize your income report, and even document the maintenance work we arrange for your home. And it’s all available, anytime, through your homeowner account.

See how Vacasa makes renting simple >