iling federal income taxes on vacation rental properties means determining net income. Net Income = Income – Expenses. Learn how to track vacation rental expenses and file those federal income tax returns!
Whether you’re an independent vacation rental host or listed on Airbnb, Vrbo, or another vacation rental site, you must be sure to file federal income taxes on net rental income. Note the emphasis! Only net income from a rental property is reported on a federal tax return. You do not have to pay tax on all of the rental income you receive. You only pay taxes on your net income.
Let’s take a closer look at what vacation rental owners need to track to properly file federal income taxes.
What Does ‘Net Income’ Mean?
Net Income = Income – Expenses.
This means you need to become skilled at tracking every single expense you make for your vacation rental property to come up with your net income, otherwise referred to as your take-home pay.
It’s very important to note that your Airbnb payout report does not include your expenses; it simply lists all of the payments you have received for renting out your property. Therefore, you cannot simply take the number from the payout report (or the 1099-K) and put it on your federal tax return. So, you need to be sure that you’re properly tracking all of your expenses that you spent on running your rental property to determine the final number of net income that you need to report to the IRS.
What Expenses Should I Track for My Vacation Rental Property?
Any expense, big and small, must be subtracted from your payout report. Here’s a list to get you started; although this is not a comprehensive list, it is a great starting point for creating your vacation rental property spreadsheet.
Some major expenses to call out include depreciation of the property and the rental portion of the mortgage interest you pay — these are both considered expenses and can lower your net income significantly. Other expenses may include:
- Real estate taxes
- Casualty losses
- Realtors’ fees and advertising costs, specifically if you’re using a realtor to help you find renters for your vacation property
- Cleaning costs, including time paid for cleaning and the cost of the supplies used
- Homeowners’ Association (HOA) fees for the rental property
- Any supplies, furniture, and appliances purchased for the express use of the vacation rental property within the tax year
- Vacation home maintenance costs
- Repair costs for damage caused by renters or normal wear-and-tear repairs
- Utility bills, including heat, electricity, gas, water, internet, and cable used while renters are inhabiting the vacation rental property
You must track and organize these expenses separately and then merge them together into one report. Seems a bit overwhelming when you add it all up! However, this is where Perch can help vacation rental owners to manage their income and expenses. Perch will help you simplify your tax returns by providing you with the essential information your CPA needs to determine the income you actually earned, without missing any key deductions or losing a weekend to paperwork. Just upload your reports from Airbnb, Vrbo, or other vacation rental sites, connect your bank account, and the 1099-K reconciliation is conducted, along with completion of either the Schedule E or Schedule C forms. All this information is presented in a clear way to file along with your tax return.
What Else Do I Need to Know About Filing Federal Income Taxes on My Vacation Rental Property?
Couple more things to understand. First of all, when you file your yearly tax return, add your net rental income to your other income for the year, such as the salary you earn from your job, any interest you earn on savings and/or investment income. You will pay the income tax on this total.
Additionally, a separate tax form, either a Schedule E or Schedule C, will also be filed with your annual return to report all of your short-term rental income and expenses.
Filing federal income taxes on your vacation rental property may seem overwhelming, but with the right tools — like Perch — and the right assistance — like your personal CPA — anyone can properly file their federal tax returns with minimal fuss.
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