Understanding the short-term rental tax reporting process
- Apr 6, 2021 | Jennifer Sokolowsky
Updated April 6, 2021; originally published October 10, 2018.
Taxes are part and parcel of running short-term rentals, whether you’re making some extra money from renting out a spare room or managing multiple vacation rental properties.
Tax reporting is an important part of tax compliance, which is why you should make sure you understand the process as well as the role your online rental platform — including Airbnb, Vrbo, and others — plays in tax reporting.
It’s critical to understand that there are two different types of taxes that need to be reported: income taxes and lodging taxes.
Income taxes are levied by the federal government and most state governments as a percentage of your total income. As a short-term rental host, you pay these out of your own pocket and they’re due once a year.
Meanwhile, lodging taxes are levied by states, counties, cities, and other jurisdictions on accommodations. Your guest pays the tax, but you’re responsible for adding the tax to the guest’s bill, collecting the tax, filing lodging tax returns, and paying the amount collected. Lodging taxes can be due monthly, quarterly, or annually, depending on the jurisdiction.
Here’s what you need to know about reporting for each type of tax.
In general, you’re required to report your income from short-term rentals to the IRS as part of your total income. However, you can reduce the amount of taxable income by deducting expenses related to your short-term rental, including items such as property improvements, operating expenses, online short-term rental platform fees, travel and transportation expenses, and more.
The 14-day rule
There’s an exception to the requirement to report your income from short-term rentals. If you only rent out your home for 14 days or fewer over the course of the year, you don’t need to report that income. Keep in mind, though, that if you don’t report the income from your short-term rental property, you also don’t have the option of deducting expenses related to the property.
Income tax reporting by your short-term rental platform
For many forms of income, the amount you receive is reported to the IRS by the source of that income, and you receive a copy of the reporting form summarizing how much you earned. These statements can include W-2 forms from employers or 1099-MISC forms from clients if you work as a freelancer or contractor, for example.
However, if you earn less than $20,000 in a year from your short-term rental, you might not receive an earnings form from Airbnb or other online short-term rental platform. If you earn more than $20,000 and have at least 200 or more reservations over the course of the year, you may receive Form 1099-K, Payment Card and Third Party Network Transactions. This is because many online short-term rental platforms are classified as payment settlement entities.
If your online platform is withholding federal taxes for you, you’ll receive a tax form indicating how much was withheld. You can change how much is being withheld each year by submitting a W-9 form.
Lodging tax reporting can be a bit more complicated than income tax reporting because you may have to report your short-term rental earnings and the amount of lodging taxes you’ve collected in more than one jurisdiction. The reporting process may be different for each jurisdiction. Your reporting requirements may also be affected by whether your rental platform is collecting taxes from your guests on your behalf.
Combination of jurisdictions
You may be responsible for lodging taxes in more than one jurisdiction. Lodging taxes in most places are made up of a number of different taxes from different government entities that are levied on accommodations. These can be sales taxes or lodging taxes, and can also be known as transient occupancy tax, hotel tax, bed tax, and more.
All of the different taxes that apply to your rental are added up to make up the final tax rate you’ll charge your guests. For instance, in Orlando, Florida, short-term rental hosts are required to collect taxes from guests that include a 6% state transient rental tax and a 0.5% county discretionary sales surtax, both administered by the state, as well as a 6% tourist development tax administered by Orange County.
It’s important to know which tax jurisdictions govern your rental so you can report correctly and avoid any fines or penalties for noncompliance.
Lodging tax registration
When you file your lodging tax returns, you’ll report the amount of short-term rental income you’ve earned and the amount of taxes you’ve collected from guests. However, before you can collect and file lodging taxes, you need to register with the correct jurisdiction for a permit or license to collect lodging taxes. In most jurisdictions, you should be able to apply for your tax permit online. You may have to pay a fee for the permit, which will vary depending on the jurisdiction. Once you have registered, you can start adding lodging taxes to your guests’ bills and collecting the tax.
Lodging tax filing
Once you register to collect lodging taxes, your jurisdiction should provide information on filing lodging tax returns, including frequency (which can be monthly, quarterly, or annually) and deadlines for filing. These may be different for each jurisdiction.
If you miss your deadlines, you may have to pay fines or penalties. In Tennessee, for example, the penalty for late filing is a minimum of $15, and that can grow to a fee equal to as much as 25% of the tax due, depending on how late the return is filed.
Most jurisdictions offer online filing of lodging tax returns. When you file, you’ll report how much you charged for your short-term rentals. You’ll also need to pay the tax amount due, usually via check or electronic transfer. Many jurisdictions allow credit card payments, but you may be charged convenience fees.
Keep in mind that in most jurisdictions, you’re required to file by the deadline even if you have no short-term rental income to report for the period and don’t owe any tax.
When your rental platform collects taxes for you
Short-term rental marketplaces such as Airbnb and Vrbo collect lodging taxes on behalf of their hosts in some jurisdictions, which means they automatically add any applicable lodging taxes to the guest’s bill, collect the tax, and pay the collected tax to the tax jurisdiction.
While Airbnb and Vrbo collect taxes for hosts in hundreds of jurisdictions in the United States, there are many jurisdictions where they do not collect. And they may collect some of the lodging taxes that you owe, but not all.
For example, in Austin, Texas, short-term rental hosts are required to collect a total lodging tax of 17% from guests and pass it on to tax authorities. This includes a 6% state hotel occupancy tax and an 11% city hotel occupancy tax. Airbnb and Vrbo automatically collect the state portion of the tax for bookings on their platforms, but Austin Airbnb hosts must collect and remit the Austin portion of the tax themselves.
It’s important to know that in most cases, rental platforms do not report your earnings or the amount of lodging tax paid on your behalf to tax authorities.
However, in a few jurisdictions, such as Indiana, short-term rental marketplaces are required by the government to collect taxes for you when the listing is booked. You're only responsible for reporting lodging taxes if they're not being collected for you.
But in most jurisdictions, you must still file lodging tax returns in order to report your short-term rental earnings and taxes collected — even if Airbnb, Vrbo, or another platform is collecting for you.