Maximizing Tax Deductions as a Short-Term Rental Owner (2024)

FAQs

Maximizing Tax Deductions as a Short-Term Rental Owner? ›

Tax Deductions for a Short-Term Rental Business

The short-term rental tax loophole, also sometimes known as the Airbnb tax loophole, is a strategy real estate investors can use to help mitigate their rental income tax by offsetting earned income with real estate losses. You've probably learned about Real Estate Professional Status as a way to reduce your tax burden.

Mortgage interest, taxes, and homeowners or rental insurance are all potentially deductible depending on how you use your Airbnb property. You can deduct 100% of the mortgage interest, insurance, and taxes if you solely use your property for rental purposes.

Generally, a good ROI for rental property is considered to be around 8 to 12% or higher. However, many investors aim for even higher returns. It's important to remember that ROI isn't the only factor to consider while evaluating the profitability of a rental property investment.

A good cash-on-cash return for a short-term rental property is generally 10% or more, but a “good” return depends on many factors.

Is Airbnb furniture tax deductible? Yes, furniture—and any costs to repair existing furniture—can be a deductible expense come tax time. The same applies to amenities and appliances you purchase for your guests, such as a toaster, a TV, bed sheets, and towels. Larger items are usually entered as assets that depreciate.

These expenses can include hiring a professional cleaning service, laundry services, buying cleaning supplies such as toilet paper, toilet bowl cleaner, a vacuum and so on. Utilities: You can deduct utility costs, such as gas, electricity, TV, Internet, trash can collection, etc.

Setting up an LLC for an Airbnb business is a smart move for many reasons. An LLC provides personal liability protection, which can give business owners peace of mind knowing that their personal assets are generally protected in case of a lawsuit.

What is the 1% rule for str? ›

How To Use The 1% Rule. To apply the 1% rule, you can either multiply the property's purchase price by 1% or move the decimal point in the purchase price two places to the left. The result should be the minimum you consider charging in monthly rent.

What is the Augusta Rule? The Augusta Rule, known to the IRS as Section 280A, allows homeowners to rent out their home for up to 14 days per year without needing to report the rental income on their individual tax return.

Variable life insurance tax benefits are essentially an IRS loophole of section 7702 of the tax code. This allows you to put cash (after-tax money) into a policy that is invested in the stock market or bonds and grows tax-deferred.

The 14-Day Rule is a provision in the U.S. tax code that allows homeowners to rent out their primary residence for up to 14 days each year without paying any federal income tax on the rental income they receive.

If you file a US tax return and report your income from US listings, usually you can provide Airbnb with a Form W-8ECI. If you provide a valid W-8ECI, Airbnb will not withhold tax on your payouts, but will issue you with an IRS Form 1042-S annually reporting your payouts for you to report on your US tax return.

Profit potential is high, but occupancy is unpredictable. As with any investment, a short-term rental must be able to prove ROI. There is no across-the-board number for a “good” ROI on a real estate investment, but on average, it is recommended to aim for an ROI above 15%.

A 10-20% return on investment from your vacation rental property is considered a good profit margin.