What tax deductions can I take on my rental property?

Whether you’re offering up a room for rent on Airbnb or a whole house on VRBO, there are plenty of opportunities for income tax deductions on short-term rental properties. Here are some tips for maximizing your deductions so you can also maximize your profits.

1. If you have an expense related to your home, keep track of it.

Most expenses related to owning, furnishing, repairing, maintaining, or even marketing your rental property are fair game for income tax deductions. Some examples include insurance, mortgage interest, property taxes, utilities, cleaning services, listing site fees, HOA fees, legal fees, even small everyday items such as soap and towels. Make sure to keep clear records, and when you have questions on what you can or can’t deduct, it’s always best to seek the advice of a tax professional.

2. Some expenses may have to be deducted over time.

Certain improvements to your property, such as a major renovation or new appliance, cannot be deducted all at once in the year you pay for them. For example, when you shell out for a new refrigerator, you must depreciate the cost over its expected lifespan. You may have to depreciate big additions or renovations over decades, or more. Again, it’s a good idea to get the help of a tax professional to make sure you’re getting depreciation right.

You can also depreciate the purchase price and closing costs of a property (but not land), beginning when the property is put up for rent. You can continue to depreciate it until you’ve deducted your entire cost or you’re no longer receiving rental income from the property.

3. How often you rent out the property makes a difference.

You’ll be able to get the most benefit from income tax deductions on a home that’s considered a full-time rental business. This is defined as a property used by you for your personal stays less than 10 percent of the total annual rental days, or fewer than 15 days, whichever is greater. Days primarily spent repairing or maintaining the property don’t count toward personal use days. With this type of property, you may be able to deduct up to $25,000 in losses each year, depending on your income.

When there’s a greater mix between your personal use (more than 14 days) and vacation rental use, you’ll only be able to make deductions in proportion to the amount of time the property is being rented by guests — and you won’t be able to deduct a loss when you spend more on the property than you earn in rental income.

In addition, if you only rent out part of the property, then you’ll only be able to deduct expenses in proportion to how much of the property you rent.

Don’t leave money on the (vacation house) table. Knowing your deductions can be well worth it come tax time.

Income taxes vs. lodging taxes

Keep in mind that you can only make these kinds of vacation-rental property deductions for income taxes. As a vacation-rental property owner, you also need to manage lodging taxes, which you collect from your guests and pass on to tax authorities. You don’t pay lodging taxes, your guest does, so deductions don’t apply.