rental property tax deductions

If you’re in the business of short-term rentals, you won’t want to miss out on the many tax deductions available to help offset your rental income. But in order to take advantage of the money-saving deductions, it is crucial to keep a detailed record of all transactions. No matter how big or small, every expense adds up. Before you book your first guest, make a plan for tracking rental property tax deductions.

As a rental property owner, you will incur many expenses that could leave you seeing red at the end of the month. The good news is that the majority of expenses are tax-deductible, reducing your taxable income. You will need to stay organized and keep all bills, receipts, and invoices as proof of the expenses paid. The best way to stay on top of your accounting and expense entry is through the use of cloud-based accounting apps. One of our top picks for expense entry is Expensify. Use the built-in SmartScan tool to record your receipts and Expensify will automatically code and report the expense for you. Others we love are Divvy and Dext. In the apps, all expenses will be properly categorized and accounted for ensuring you are able to get the biggest deduction at the end of the year. 

Per the IRS, you can deduct the ordinary and necessary expenses for managing, conserving, and maintaining your rental property. Below are some of the top tax deductions you won’t want to miss out on.

  • Household items and supplies can really add up when renting a home out on platforms such as Airbnb and VRBO. Items such as towels, dinnerware, kitchen supplies, bedding, and cleaning supplies are all deductible. This is where a mobile app will come in handy! Scanning receipts on the go is an easy way to stay organized.
  • Mortgage interest is one significant ongoing deduction that many property owners overlook. While the portion of the payment that goes to the principal balance isn’t deductible, the portion that goes towards interest is. 
  • Occupancy taxes are commonly charged by the local governments (your state, city, county, or town) in which your rental property is located. Similar to sales tax, occupancy taxes are deductible and should be tracked.
  • Property taxes are another significant expense you’ll incur regardless of whether the property is mortgaged. Don’t forget to document these taxes, or have your tax professional assist you with determining your property taxes for the year in order to deduct them at the end of the year.
  • Insurance premiums are a must for rental property owners. Don’t worry, these expenses are deductible as well.
  • Repairs needed to to keep your property in proper working condition are deductible, including the supplies and labor costs. If you are performing the repairs yourself, you are able to also deduct costs for renting tools or purchasing supplies, but not to pay yourself for the labor. It’s important to remember that while repair expenses can be deducted, improvements that increase the value or extend the life of the rental property are not considered necessary or ordinary therefore are not to be deducted as an expense.

We have put together a comprehensive guide of the top small business tax deductions that will leave you feeling relieved this tax season. In this guide you will find small business tax tips, detailed examples, and strategies to tracking expenses, giving you a better understanding of how to take advantage of these tax-saving opportunities.

You will need to keep detailed records of all expenses, as well as guest stays and personal use, when filing taxes at the end of the year. As an Airbnb host, you will file either a Schedule C or Schedule E with your return. We recommend consulting your CPA to determine which to file, as it can be a complex determination based on your circumstances.

If you own more than one rental property, be sure to treat each property as a separate business. Open separate bank accounts and credit cards, and keep each property’s records separated in your accounting software. If you need a hand maintaining your Airbnb books, send us a message. We have an experienced team well-versed in rental property tax deductions, and we’re ready to help you maximize the business potential of your rental portfolio.