Busy vacationers seek out vacation rental properties to get a slice of hometown life in another part of the country. Airbnb and Vrbo renters are looking for authentic experiences without running into hundreds of others at a hotel pool or getting caught in tourist traps. They usually want an experience that mimics that of the locals. If they wanted to stay in a hotel, they would have!
And . . . your Airbnb or Vrbo is not a hotel, so you shouldn’t treat it as such when it comes time to file your taxes.
But, Why is My Vacation Rental NOT a Hotel?
It’s true that you put a ton of time and effort to maintain your vacation rental property and ensure it is a clean, comfortable place for your renters. However, you’re not considered a hotel, and you actually don’t want to be for tax reasons. For example:
- You don’t clean the rooms when guests are there, unlike a hotel that cleans rooms daily and leaves fresh towels. Providing a cleaning service in-between guests stays is not the same as a maid service that hotels utilize.
- You don’t have a concierge service. Leaving out brochures about your local restaurants and binders with recommended attractions does not count as a concierge service. You’re simply giving your renters information on what to see and do; you’re not making reservations or offering opinions on the best places for their specific wants and needs.
- You don’t provide transportation services.
- It’s likely that you require guests to take out their own trash, run a load of towels or sheets in the laundry, and at least strip the beds and pile dirty laundry at a specific place in the house. You also probably require guests to do their dishes before leaving, and clear clutter and wipe down surfaces from crumbs and other debris.
Are There Tax Benefits to Not Being a Hotel?
You guessed it — yes, there are tax benefits to not treating a vacation rental property as a hotel. You’ve probably read online that if you provide “substantial services” or if you provide “hotel-like services” you should file a Schedule C (see previous blog [LINK HERE] to Schedule C or Schedule E blog). Substantial services are defined as if the services you provide are more than 10% of the value of the booking. It’s really unlikely that vacation rental property owners are providing hundreds of dollars worth of services for their renters to utilize while staying in their space.
However, when you file a Schedule C, you are required to pay self-employment taxes to the tune of 12.4%. Yet, if you file Schedule E, you will not have to pay self-employment taxes, thus saving you that 12.4% in income.
Make Tax Time Easy for Vacation Rental Property Owners
Perch makes it simple for vacation rental property owners to keep track of expenses and run reports to hand-off to your CPA at tax time. Perch simplifies tax preparation for income properties and gives users a full picture of how each property is doing and empowers vacation rental property owners to get taxes right, even if they’re not a numbers person.
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