Airbnb host tax deductions: Furniture, cleaning, mortgage interest

What counts as an ordinary and necessary Airbnb expense? 

The IRS’s definition of a deductible expense for Airbnb or Vrbo hosts, and other self-employed taxpayers, is one that is both ordinary and necessary. To be “ordinary,” it must be a common and accepted expense for your industry. To be “necessary,” it must be helpful and appropriate for your industry. In other words, if other hosts in your position would typically spend money on it to run their rental, and it genuinely helps you host, manage, or maintain your property, it most likely qualifies as a deductible expense.

What are the common expenses I can deduct for my Airbnb property?

 There are a few types of common expenses you can deduct for your Airbnb, Vrbo, or other short-term rental.

• Property costs: These are the direct costs of your property, including mortgage interest (excluding principal payments), property taxes, homeowners’ insurance, and depreciation.
• Utilities and maintenance: These are the costs of upkeep for your property, like electricity, water, gas, internet, trash, and repairs.
• Must-haves for guests: These include anything you need to get the property guest ready, like professional cleaning, toiletries, linens, appliances, etc.
• Small-business expenses: These are the costs of running and marketing your small business, and can include service fees for Airbnb, Vrbo, Booking.com, etc., professional photos and advertising, as well as property management fees, co-host payments, booking software, mileage to and from the property, etc.

Keep in mind that if you use only part of the property for your vacation rental, you’ll need to split the cost of expenses that affect the whole house, like utilities or mortgage interest, based on the percentage of the house dedicated to your rental. Whichever expenses apply to you, keep receipts and records for everything. A little bookkeeping now can save you a lot of stress if the IRS ever asks for documentation.

How mortgage interest deductions work

Mortgage interest is one of the biggest deductions you can take as an Airbnb or Vrbo host. If you offer your property for rent the entire year, you can deduct 100% of the mortgage interest you’ve paid for the year. On the other hand, if you rent out only a portion of the property, or offer the property for rent for only part of the year, and the remainder of the year is for personal use, you can only deduct the percentage of your property that reflects the rental use.

For example, let’s say you rent out your lake house 100 days out of the year only during the spring and summer. You reserve the property for personal use for the remainder of the year. Divide the number of days you rent out the house by 365 to find the percentage of the year you rent it out. In this case, you could potentially deduct 27% of your yearly mortgage interest. So, if you paid $10,000 total in mortgage interest, you could deduct $2,700 of that from your income.

Now let’s say you rent out your above-garage apartment over the entire year, which is 20% of your total home. If we stick with $10,000 in mortgage interest for the year, you could deduct $2,000 in mortgage interest from your rental income.

Finally, let’s say that you rent out that same above-garage apartment, but only for 100 days of the year and use it for personal storage the remainder of the year. Multiply the percentage of your home you rent by the percentage of the year you rent (20% x 27%) to find the percentage of paid mortgage interest you can deduct. In this case, you can deduct 5.4% of the mortgage interest you paid, which would be $540 of the $10,000 figure.

Take note that you can only deduct mortgage interest, not your full mortgage payment. Principal payments go straight to your equity, which is why they are not deductible.

The property tax deduction works the same way.

Deducting furniture and appliances on taxes: Deduct now or depreciate over time 

When you buy furniture, appliances, or other big-ticket items for your Airbnb or Vrbo rental, you can choose between writing off the full cost this year or spreading the deduction out over several years.

Here's how each option works.

Deducting the full cost at once.

If an item costs $2,500 or less, you can deduct its full cost the year you buy it. This is called the "de minimis safe harbor" election. You must elect the safe harbor each year you use it. You can often deduct pricier items, like a $4,000 sofa or a new refrigerator, right away, too, through Section 179 or bonus depreciation.

Depreciating over time.

For bigger purchases, you can also choose to spread the deduction over several years instead of taking it all at once. Each year, you'd deduct a portion of the item's cost based on its useful life, typically five years for major appliances and seven years for furniture.

Determining whether to deduct the full cost now or depreciate over time depends on your income and goals. If you’d rather have a bigger tax break now to offset a high-income year, deduct the full amount now. But, if you’d prefer to spread the benefit over time, depreciating may make more sense. Work with a Tax Pro to help you figure out the best option for your specific situation.

Deducting cleaning costs: Fees, supplies, and your own labor 

Whether you do it yourself or outsource to the professionals, cleaning is a huge part of being a good Airbnb or Vrbo host. The good news is that many of the costs are fully deductible, including the cost of hiring a cleaning service, as well as cleaning supplies, like disinfectant, detergent, vacuum bags, and more.

The bad news? If you do the cleaning yourself, your time is not deductible. The IRS will not allow you to pay yourself by deducting the cost of your time. However, it will allow you to deduct your mileage to and from the property, as well as any equipment to make the job easier, like a steam cleaner or vacuum.

Can I claim expenses for Airbnb management and cleaning services? 

Yes, you can deduct the full costs of property management, cleaning services, and any other services you need to run your business. These may include landscaping services, pest control, pool maintenance, snow removal, and any other services tied to maintaining your Airbnb, Vrbo, or other short-term rental property.

Since these costs can add up across multiple vendors, tracking them as you go, rather than trying to reconstruct them at tax time, makes filing much easier.

How rental income is taxed 

Rental income you earn from Airbnb or Vrbo is generally taxed as regular income, but the IRS may treat it a little differently depending on how you use the property.

If you rent out your space for more than 14 days a year, the IRS requires that you report that income on your taxes. Luckily, you also get to deduct your rental expenses, which lowers the amount you will owe taxes on.

Most hosts must report this income and these expenses as passive income, similar to a traditional rental property. That label matters because it limits what you can do with rental losses (expenses). Generally, you can only use them to offset other passive income, not income from your job or business, although there are exceptions.

What is the short-term tax loophole? 

As previously mentioned, normally, you can only use rental losses to offset your passive income, not your regular paycheck. But if your average guest stay is seven days or less, and you provide substantial hotel-like services, such as daily maid service, meals, or concierge services, the IRS doesn't treat your rental as passive. It treats it more like an active business.

That distinction matters because it means you may be able to use rental losses, including depreciation, to reduce your total taxable income, not just your rental income.

To qualify, you also need to be actively involved in running the property, whether that's handling bookings, coordinating cleanings, or communicating with guests. This is known as "material participation," and the IRS has specific rules for what counts. Your local Tax Pro can help you determine if you qualify.

This strategy is popular with many hosts because it can turn a short-term rental into an effective way to lower your overall tax.

Schedule C vs. Schedule E: Which form applies to your Airbnb 

Whether you report your rental income on Schedule C (Form 1040), Profit or Loss from Business, or Schedule E (Form 1040), Supplemental Income and Loss, depends on whether you provide substantial services. These may include things like daily housekeeping, meals, entertainment, or concierge services.

If you do provide substantial services, the IRS considers your rental income to be business income rather than passive income, and requires you to report it using Schedule C.

If you do not provide substantial services, the IRS considers your rental income to be passive income, and requires you to report it using Schedule E.

There are many deductions you can take as an Airbnb or Vrbo host that can help reduce your taxes and maximize your take-home pay, but the rules can be complicated. If you have questions or concerns, don’t hesitate to reach out. We’re open all year, and your local Tax Pro is always ready to help. Find tax services near you to get started.