What Do I Need To Know About Short Term Rental Taxes

[Joe Splitrock]

We recently put a property under contract that will be our first short term rental. We have owned long term rentals for a number of years, so we are very familiar with how to track and handle expenses on that type of property. The biggest difference seems to be startup costs and furnishings, but I have also read comments about being self employed in a STR business. I do have a CPA who I do plan to speak to, but I want to get educated ahead of time so I can have an intelligent conversation. I don't want to miss any deductions.

1. My question is how does a STR differ on taxes from a LTR or do I just use the standard Schedule E? 

2. Are purchases like furniture expensed or depreciated? Does it matter if they are purchased before we put the property "in service" and start renting it?

3. I am assuming with startup costs my first year will be a loss, so I assume I can write that off against my LTR income, correct?

4. I read somewhere that with a STR it is considered an active business and you are self employed versus rentals that are considered passive. Is there something here with self employment I should be aware of as far as taxes or additional write offs?

@Natalie Kolodij and any other CPA or STR owners please share your best advice.

[Lisa Graesser]

I am not a tax professional,, but have learned a lot from books and podcasts.. A good book to read "Tax guide for short term rentals" by nolo, my husband and I are considered sole proprietors so we file on schedule E. You will need to check with your State Dept of Revenue for short term rental taxes , you most likely will have to pay a sales and use tax monthly based on rents received, VRBO and Airbnb remit taxes for you in some States.

You will only be able to write off start up expenses up to a specific amount(?5,000), prior to having your property available for rent. Once you have advertised it, ready to rent , you can deduct expenses, furniture is usually depreciated but with new tax laws, I think you can take more deductions in the same year vs. Depreciate.

As far as I know, this is still consider passive income so I do not consider myself self employed .  Like I said, I am not a tax professional, this is just what I have learned on my own, so maybe we will hear from a real tax expert .

[Michael Baum]

Hey @Joe Splitrock., our CPA uses the Schedule E and STR's are considered passive. Now if you provide "significant services" like providing daily bed changes and the like, then that changes.

As far as depreciation goes, check out this IRS publication - https://www.irs.gov/publicatio...

[Doug Pintarch]

Hey @Joe Splitrock !   We are exactly the same here in PA as Michael is in WA!

[John Teachout]

We do airbnb in our home and treat a portion of our home as a rental property. I expect the IRS to eventually clarify the STR situation as it's really fuzzy right now whether it falls under a schedule C or schedule E. We file it as a schedule E.
In our area there are no other taxes due but where my son did Airbnb in FL there was. And Airbnb did collect and remit that tax automatically.

It's our version of house hacking.

[Joe Splitrock]

Originally posted by @John Teachout:

We do airbnb in our home and treat a portion of our home as a rental property. I expect the IRS to eventually clarify the STR situation as it's really fuzzy right now whether it falls under a schedule C or schedule E. We file it as a schedule E.
In our area there are no other taxes due but where my son did Airbnb in FL there was. And Airbnb did collect and remit that tax automatically.

It's our version of house hacking.

 I think the IRS is fairly clear. They state that short term rentals are accounted for under a schedule E, dividing the home as you state. That is kind of what I figured, but I am always looking for what I am missing.

[Natalie Kolodij]

Short term rentals are Schedule E. 

Whether passive or non passive is actually semi tricky- I have an article coming out on that soon. 

You can have non passive on schedule E (Such is the case when someone is RE professional) 

They ONLY go on schedule C when it's material participation AND substantial services are provided. 

You can write off all furnishings. Don't list it as start up costs. Just costs incurred for the property being put into use but able to be separated out to a shorter 5/7 year life which means 100% bonus depreciation and full write off in year 1.