The 2026 FIFA World Cup kicks off (see what I did there) in just a few weeks.
And if you’ve decided to list your home or spare room on Airbnb or VRBO to capitalize on the influx of global fans, I want to make sure you’re prepared for the tax side of short-term rental income.
Or, even if you’re just renting out a beach house or lakeside cabin for the season, understanding the tax rules around short-term rentals is the difference between keeping your hard-earned profits and handing an unnecessary chunk over to the IRS.
In the eyes of the IRS and state taxing authorities, once you begin charging guests to stay in your house, apartment, or even just a spare bedroom, you are officially a landlord. This means the money you earn is considered taxable income.
However, the taxability of your rental depends heavily on how many days the property is occupied by guests versus how many days you use it yourself.
Commonly known as the “Master’s Exception,” the 14-day rule is the primary way you can avoid paying federal income tax on your rental earnings. But you must meet both of the following criteria:
If you meet these two conditions, the IRS essentially treats the rental as non-existent for tax purposes. You don't report the income, but you also can’t deduct any rental-related expenses.
If you rent your space for 15 days or more, you have officially entered the realm of landlord status. At this point:
Beyond federal and state income taxes, you must also be aware of occupancy taxes. Sometimes referred to as tourist tax, hotel tax, or room or lodging tax.
Unlike income tax (which you pay on your profits), an occupancy tax is a percentage of the rental price paid by the guest and collected by you or the platform.
The rates and registration requirements vary wildly by city and county. Before you list your space, check your local ordinances to ensure you are collecting and remitting the correct amount to your local government. Failure to do so can lead to hefty penalties, regardless of how much you earned.
If you don’t meet the requirements of the IRS 14-day rule, you must report your rental earnings on your tax return. So, the first thing I look at as a tax pro is how you’re hosting. Because that determines which tax form we use.
There are two primary classifications for reporting this income:
Because of federal reporting laws, rental platforms are required to share your earnings data with the IRS. Depending on your volume, you may receive one of two forms:
Sometimes, a platform might send a 1099 to the IRS even if you rented your place for fewer than 14 days (especially if you live in a state with lower reporting thresholds).
This is why I tell every client to treat their rental like a business from day one. Keep a meticulous log of:
Clear records make it easy to prove you meet the 14-day "Master’s Exception" or to accurately divide expenses between personal and business use for longer rentals.
The tax code allows you to deduct ordinary and necessary expenses to lower your taxable profit. Essentially, you only pay taxes on your net income (what’s left after expenses), not the total amount guests paid.
Here are the most common deductions I look for when reviewing a client’s rental portfolio:
Depreciation also allows you to write off the cost of the property (excluding land) and its furnishings over time.
And because of the OBBBA, 100% bonus depreciation allows you to potentially deduct the entire cost of furniture, appliances, and certain interior improvements in the very first year they are placed in service, rather than spreading the cost over several years.
If you are renting out a spare room or a home you also live in, you can’t deduct the entire house's expenses. Instead, you must allocate them:
Essentially, this strategy allows high-earning W-2 employees or business owners to use losses from their rental property to directly offset their other income, potentially saving a lot in taxes.
Normally, the IRS (under Section 469) classifies all rental income as passive. This is a problem because passive losses can only offset passive income. If your rental shows a loss due to depreciation but you have a $200,000 salary, that loss usually just sits there, suspended for future years. You can't use it to lower the taxes on your paycheck.
The "loophole" exists because the IRS does not consider a property a rental activity if the average guest stay is 7 days or fewer. In this case, the property is treated as a business. If you materially participate in that business, your losses become non-passive.
Non-passive losses can offset your W-2 wages dollar-for-dollar.
To qualify, you must pass both of these tests:
Imagine you earn a $150,000 salary. You buy a short-term rental, perform a cost segregation study, and meet the material participation requirements.
Gross W-2 Income: $150,000
STR Depreciation Loss: -$127,000
New Taxable Income: approximately $23,000
By using the loophole, you’ve effectively shielded nearly your entire salary from federal income tax for the year.
However, here’s my obligatory tax pro warning: If you claim this, you must keep a contemporaneous time log. If your log looks like it was written in one sitting with rounded-off numbers, an auditor will treat it as a ballpark estimate and likely disqualify your hours. To protect your W-2 offset, you need a record that was built week-by-week, backed up by receipts and digital timestamps.
We’re approaching summer. Which means you’re entering the highest-volume period for logging the material participation hours needed to legally offset your W-2 income.
On top of that, the June 15th Q2 estimated tax deadline is coming up. Your summer bookings may push your income higher than you projected, which could lead to an ugly underpayment penalty next spring.
We're currently opening spots for mid-year strategy sessions to audit your participation logs and calculate your Q2 payments so there are no surprises in April. Let’s get your session on the calendar:
booknow.appointment-plus.com/7rxplj6m/
“Airbnb says they have collected and remitted some taxes on our behalf, but we can't find where or to whom those taxes were actually paid?”
Platforms like Airbnb and VRBO often collect state-level sales or occupancy taxes, but they may not collect local city or county-level taxes. To find exactly what was paid, look at your "Gross Earnings" report or your Transaction History on the platform. You’ll see line items for "Occupancy Tax" or "Pass-through Tax." These are usually paid to the state’s Department of Revenue. If you don't see a specific local tax listed there, you are likely responsible for filing and paying that yourself to your local municipality.
“Do you have to pay taxes on Airbnb rentals?”
If you rent your Richmond county property for more than 14 days in a calendar year, the income is taxable at both the federal and state levels. If you stay under that 14-day limit (the "Master’s Exception"), you typically don't pay federal income tax on that money, but remember that occupancy taxes (local tourist taxes) still apply from day one.
“Do I need to report my Airbnb income under $20,000?”
For 2026, the OBBBA has restored the 1099-K reporting threshold to $20,000 and 200 transactions. This means if you earned $15,000, you likely won't receive a tax form from Airbnb, but you are still legally required to report that income. The IRS considers all income taxable, regardless of whether a platform sends you a piece of paper.
“Does hosting on Airbnb or VRBO make you self-employed?”
It depends on the services you provide. If you just provide a space, utilities, and basic cleaning between guests, you are a landlord and report on Schedule E (no self-employment tax). However, if you provide "substantial services" like daily cleaning while guests are there, breakfast, or guided tours, the IRS views you as a business owner. In that case, you report on Schedule C and will owe 15.3% self-employment tax.
“What are the tax deduction categories for short-term rental income?”
Keep receipts for:
“Should hosts do their own bookkeeping on QuickBooks or hire someone?”
If you have one property and it’s your first year, a well-organized spreadsheet or QuickBooks Self-Employed is often enough. However, once you have multiple properties or start trying to use the STR Loophole to offset your W-2 income, the complexity skyrockets. At that point, hiring a bookkeeper or a tax pro to oversee your records is an investment that pays for itself by preventing missed deductions and avoiding IRS red flags.
“When can we start claiming depreciation? Does it have to be after we officially list the Airbnb?”
You can start claiming depreciation the moment the property is "placed in service." This means the property is ready and available to be rented, even if you haven't secured your first booking yet. If you spent all of May renovating and listed it on June 1, your depreciation clock starts June 1.
“Will VRBO remit local taxes for me?”
VRBO has agreements with many states to collect statewide taxes, but thousands of small cities and counties require separate registration. Check the "Taxes" section in your VRBO dashboard. It will explicitly tell you which taxes they are collecting and which ones remain your responsibility. If it’s not listed as collected, you must register with your local tax authority and remit those payments yourself.
