Taxes and Short Term Rentals

Taxes and short-term rentals.

Here's what you should know when it's time to file.

Buying into real estate is nerve racking and exciting all rolled into one big happy home. People often buy into the real estate market and don't realize that there are a plethora of decisions and costs that come along with it. One being taxes.

So, you bought a house in a pretty good rental market and have decided to be a short-term rental owner. Congrats! That is a huge step in and of itself making the choice to own a property. Now you have your rental set up with all the bells and whistles and you're ready to put it out there for the world to enjoy. The whole process has been a learning experience, and your rental property is doing well, but tax season is near, and you are starting to question what it is you need to worry about to keep your income track. Let's talk about taxes. There are a few things that you should be made aware of before heading to the tax table.

1. Rental income is taxable. If you rent your property for more than 14 days out of the year, it is considered a rental property. On the plus side, you can deduct all qualifying rental expenses. Make sure to keep a record of necessary expenses that are appropriate, such as interest, taxes, advertising, maintenance, utilities, and insurance.

2. Management fees are 100% deductible. If you decide managing your property is too much hassle, you can always hire a professional to take over the headache.

3. If you have individuals that you pay for certain household expenses such as cleaning or maintenance, be sure to have them fill out a W-9. W-9s are used to verify important information for individuals so that you are able to send out their 1099s at the beginning of the year. These payments for services pertaining to your rental expenses can be used as an appropriate deduction.

4. Rental sites such as Airbnb or VRBO will usually send a 1099 to the IRS to report your yearly income. This is where you will want to keep a good record of all expenses paid to each site for bookings or fees. These forms can also be printed out from each site for your records at any time.

5. For rental income, you will use a Schedule E (Form 1040) to show all income and expenses in real estate.

Now that all your paperwork has been prepared, and all necessary documents have been gathered, you are ready to sit down with your CPA and file!

Owning a short-term rental property has its perks, but it can be a bit of hard work keeping track of all the necessary documents and rules needed to keep your rental up to date and in compliance. Hiring a professional to come in and take over the day-to-day activities can bring a huge relief to your well-being as well as free up your time so that you can acquire more properties. Connect Coastal Vacation Rentals is always looking for ways to give knowledge and freedom to people who want/need it and is there for you when you're ready.

Links for more information

What Is a W-9 Form? Who Can File and How to Fill It Out (investopedia.com) Is Rental Income From a Vacation Home Taxable? Charles Schwab Know the tax facts about renting out residential property Internal Revenue Service (irs.gov) Rental Property Tax Deductions (investopedia.com) Tips on Rental Real Estate Income, Deductions and Recordkeeping Internal Revenue Service (irs.gov)