Nobody wants trouble with the tax man. If you’re an STR property manager planning to expand your portfolio into new US regions, you need to have the necessary knowledge to avoid any issues.
While having financial advisors or an accountant is important, you should also have your own understanding of short-term rental tax. By exploring it for yourself, you can uncover opportunities for financial advantages, including tax loopholes and deductibles.
Whether you've received a letter from the IRS or are just starting your research, this guide is for you. We cover everything you need to know about short-term rental taxes, breaking down key concepts and exploring the STR landscape. Let’s get into it.
DISCLAIMER: This guide is not a substitute for professional tax advice. Consider this an introduction to the types of legal information you may need to consider. You should direct any specific questions towards a certified tax professional.
Short-term rental tax can be tricky and complex. To help, we’ve streamlined some of the most important areas for you to bookmark.
We’ve also compiled some practical advice and actionable insights for each area to support your short-term rental tax portfolio.
Short-term rental tax loopholes are a viable way to take advantage of any income from investing in STR properties. Also known as the ‘Airbnb tax loophole,’ this strategy allows real estate investors to generate income by offsetting their earned income against any real estate losses.
So long as you meet certain conditions, you’ll be able to generate income from short-term rental properties while offsetting taxable income through the deduction of depreciation and other expenses.
What’s unique about this is the exemption from “passive loss limitation rules”, which can sometimes apply to rental properties. When rental activities are non-passive, they usually fall into this loophole.
One of the most important tax exemptions is the 14-day rule, or the 10% rule. This means you don’t have to report any earned income from a short-term rental so long as you rent out the property for only 14 days or more than 10% of the year. But you must also use the property for 14 days or longer during the same year.
For those who do meet the 14-day rule, companies, including Airbnb, can report income on an STR to the IRS with Form 1099-K. You can add the income to your tax return as additional income and then subtract it as an adjustment. Just make sure to note it as qualifying for the 14-day exception.
However, it's important to remember that if you use the 14-day rule, you cannot claim any rental expenses. If you exceed the 14-day rental period, you must keep track of the rental dates to accurately calculate and distinguish between personal and business expenses.
An STR deduction is an expense made on your short-term rental business to help lower your taxable income.
Short-term rental hosts can deduct any expenses related to their rental property from their taxes. These deductions may include costs for professional cleaning, furnishings, and damages, as well as any service costs for managing the property.
To keep your taxable net income low, look for tips on Rental Real Estate Income, Deductions, and Recordkeeping from the IRS.
One of the most important elements of STR laws is to remember that some state and local governments can impose occupancy taxes on STRs. These will vary from one jurisdiction to another, including differences in the tax names, rates, and specific regulations. Typically, STR operators are required to collect occupancy taxes from renters and remit them to the appropriate local tax authority.
In some cities or states, platforms like Airbnb handle this process on behalf of property managers, simplifying compliance with local tax laws. However, it’s essential to verify the specifics for each location where you operate to ensure all tax obligations are met.
The IRS can sometimes consider a property manager self-employed if they rent out their home, make bookings, or provide services like breakfast.
That means property managers may be responsible for paying applicable taxes to cover Social Security and Medicare contributions for income and income taxes.
With a better sense of the key short-term rental tax considerations, let’s look at some of the most Airbnb-friendly cities.
With this list, you should find a snapshot of tax considerations for each area before you consider whether it may be viable to grow your portfolio in these regions.
In New York, all Airbnb Hosts that rent homes, apartments, or rooms must report rental income to the IRS.
When renting a property for less than 90 days, New York State imposes a sales tax of 4%. Rentals exceeding 90 days are exempt from this sales tax. On top of this, local city or county taxes apply, ranging from 3% to 5%. In New York City, Airbnb short-term rentals are subject to a hotel room occupancy tax. In Manhattan, this rate is 5.875% plus $2.00 per day. Understanding these taxes is crucial for compliance and maximizing your rental income in New York.
Last year, the average rental property income was 13.5 thousand US dollars. There were also more than 39.7 thousand available properties in the area in 2023, making NYC a booming area for Airbnb.
New York State: New York Department of Taxation and Finance
Avalara: New York vacation rental tax guide
Airbnb: New York community update
Los Angeles is the second-largest city in the US and hosts major events, including the annual Super Bowl and the LA Marathon.
Running an Airbnb in LA means accounting for various taxes, like the Transient Occupancy Tax, also known as the “bed tax” or “hotel tax.” Any guest staying more than 30 days in a hotel, motel, or Airbnb must pay an extra 12% rent in tax.
From September 2024, the L.A. County Board of Supervisors will impose new rules on Airbnb hosts who want to expand into unincorporated areas. These new rules aim to strike a balance between the volume of long-term housing and the quality of life for people in unincorporated areas. STR operators must also register annually with the TTC, follow a new set of rules, and pay a $914 fee, but they can expect financial benefits in return.
Please note that new regulations consider STRs as less than 30 consecutive days at the host’s primary residence. Either the host or a responsible person should be available on the phone to respond to any concerns or complaints.
Los Angeles Office of Finance: Monthly tax requirements, Occupancy tax requirements, Transient Occupancy Tax FAQs
Avalara: New STR rules
Chicago is a top tourist destination, which means large numbers of tourists are looking for Airbnbs—providing hosts and property managers with a big opportunity. Landlords must be aware of all key short-term rental tax implications, which range across property, transfer, hotel, sales, and income.
In particular, landlords must consider the Chicago Hotel Accommodations Tax at 6.5% on rent for all vacation rentals, furnished apartments, and other short-term rentals of less than 30 days. There is also a 10.25% sales tax on all residential rentals of less than 6 months and a Real Estate Transfer Tax at 0.75% of a property’s sale price split between buyer and seller.
Further important documentation to review includes the RLTO for landlord and tenant responsibilities, Hotel Accommodations Tax, and the Vacation Rental and shared Housing Surcharge.
City of Chicago: RLTO, Chicago Hotel Accommodations Tax
Chicago Property Management Blog: Housing taxes in Chicago
The State of Texas, Harris County, and local city ordinances govern short-term rental laws in Houston. The state and County impose hotel occupancy taxes on STRs.
Hosts must register their STR properties, gain an STR permit, and report all income to the IRS. They also need to ensure compliance and abidance with the Hotel Occupancy Tax. This asks landlords to collect and remit 7% of rent along with 6% tax to the state. A Texas sales tax of 8.25% may also apply, but landlords should check this with a tax advisor.
The City of Houston does not have specific zoning ordinances. However, in 2024, Mayor John Whitmire is scrutinizing general safety levels in STRs based on increased rates of parties, drugs, and lewd acts in STR properties.
If you’re considering investing in Houston, you should also be investing in property monitoring systems like Minut. Minut’s noise, occupancy and cigarette smoke monitoring prevents excessive noise and parties in STRs. As Minut doesn’t record any audio, it is also 100% privacy-safe, and is an approved partner of Airbnb.
Houston Government: Short-Term Rentals in Houston
Steadily: Rental Laws and Regulations in Houston 2024
The Real Deal: Houston Mayor wants to reclass STRs to hotels
Phoenix introduced the Short-Term Rental Ordinance as a primary regulatory framework in 2016 and takes a strict approach to gaining a license via the application.
Hosts must register with Maricopa County and get a Transaction Privilege License from the Arizona Department of Revenue to remit a Transaction Privilege Tax (TPT) on short-term rentals at a rate of 2.3%. Property managers must also include a TPT license number in all advertising associated with short-term rentals.
STR hosts must also pay an 8.6% sales tax and 14.5% transient lodging tax for all stays under 30 days. The city of Phoenix also imposes penalties for STR violations ranging from $500 to $3,500.
City of Phoenix: Short-term rentals
City of Phoenix: Transaction privilege (sales) and use tax
Arizona department of Revenue: STR and LTR tax obligations
Short-term rental tax in Philadelphia means paying several taxes to the state and city. Specifically, these include:
Pennsylvania law also states all STR property managers must be registered and submit the Pennsylvania hotel occupancy tax of 6% to the Department of Revenue. They will also collect 1% Hotel Tax in Allegheny and Philadelphia.
City of Philadelphia: Tax Centre, Short-term rental law
Pennsylvania Department of Revenue: Third party broker rentals
After a period of increased popularity for short-term rentals in San Antonio, the market has experienced a slowdown. This is largely because the city is facing revenue losses due to unpaid taxes.
In response, new short-term rental tax laws have been introduced, increasing the fee for three-year permits on unoccupied properties from $100 to $450. The fee will rise from $100 to $300 for owner-occupied short-term rental permits for three years.
These amendments aim to address the increase in unpermitted rentals, which currently evade paying the 9% Hotel Occupancy Tax to San Antonio and an additional 1.75% to Bexar County.
The objective is to enforce regulations on unpermitted rentals, ensuring they contribute to the hotel occupancy tax. All Short Term Rentals within the city limits must obtain a Short Term Rental permit to operate.
San Antonio Government: Short Term Rentals (STR), Updated ordinance, STR Tax guide
San Diego has become a popular destination for vacation renters and property owners. However, recent reports indicate that the rise in short-term rental (STR) properties is diminishing housing availability and reducing investment opportunities. For example, Pacific Beach has seen over 4% of its housing converted to whole-home vacation rentals, and corporate entities now hold up to 40% of STR licenses.
All STR hosts must meet the San Diego Municipal Code requirements and obtain a Transient Occupancy Registration Certificate. The STRO Ordinance also requires property owners to hold a Short-Term Residential Occupancy License for any dwelling used for less than 30 days.
There are 4 tiers to STR Occupancy Licenses and operating without a license is illegal. Property owners must also pay Transient Occupancy Tax at 10.50% of the rent and collect it from the guest when they pay.
Further reading:
San Diego County Treasurer-Tax Collector: Transient Occupancy Tax
San Diego Government: Taxes, Business tax/Rental unit business tax
Dallas City Council implemented new regulations for STRs in 2023 to balance economic benefits with the impact on the city.
Now, STRs apply only to multi-family, commercial, and mixed-use zones, and they’re banned in single-family residential areas.
Operators are legally obligated to register annually using a portal and collect a 7% Hotel Occupancy Tax from guests. The city then uses the tax revenues to contribute to developing local neighborhoods.
One thing to note is that there are noise restrictions for short-term rentals to promote more peaceful environments from 10PM to 7AM. If you’re considering renting out a property in Dallas, make sure to use a privacy-safe monitor like Minut. Minut enables property managers to remotely monitor and manage their properties with real-time alerts on excessive indoor and outdoor noise, over-occupancy and cigarette smoke.
Dallas City Hall: Controller’s office
Avalara: Texas Vacation Rental Tax Guide
BNBCalc: Dallas short-term rental regulation
Short-term rental tax comes in different forms, from occupancy tax loopholes to deductibles and the 14-day rule. Understanding how these work can help open up opportunities to invest in other cities and states.
Taxes and regulations will vary across each region, though, and you’ll need to stay on top of current developments in areas with high growth for STRs, which brings both opportunities and challenges for the area. However being on top of your obligations as a property manager will help, as will being sure of details across the cities and states you operate in
In such a dynamic market, there are obvious occupancy risks, including parties, property damage, and community disturbances. Over 50,000 property managers trust Minut to monitor their property and keep them informed in real-time. Book a demo to find out how we could help you.
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