Taxes on Vacation Rental Income: Deductions & The 14 Day Rule

When you start renting out your vacation property, taxes might not be the first thing on your mind. But understanding how rental income is taxed can make a big difference. It's one of the reasons vacation rentals can be considered a good investment

Think of it this way: mastering tax rules gives you a superpower. It’s your secret weapon to keep more of the money you earn.

The IRS requires you to report any rental income if you rent out your property for more than 14 days a year. It doesn’t matter whether you use platforms like Airbnb or VRBO—if you’re renting, the IRS wants its share.

But here’s the good news. By knowing the rules, you can use tax deductions to lower your taxable income. This means you get to hold onto more of your hard-earned cash.

Deducting expenses like repairs, maintenance, and management fees turns what might feel like a burden into an advantage. Understanding these rules helps you maximize your investment, turning potential liabilities into long-term financial gains.

What Should I Know Before Turning My Property Into a Vacation Rental?

Understanding the 14-Day Rule: The Foundation for Tax Benefits

The 14-day rule is a key determinant of how the IRS classifies your property for tax purposes. This rule outlines how much you can personally use your vacation property before it impacts its classification as a rental business versus a personal residence.

What is the 14-Day Rule?

The IRS allows property owners to rent out their homes for up to 14 days per year without reporting the rental income or deducting rental expenses. These rentals are treated as "personal use," meaning no income taxes are owed on the earnings. However, if you rent out your property for 15 days or more within the same year, all rental income must be reported to the IRS, and your property is generally considered a rental business.

Personal Use of a Rental Business Property

Even if your property qualifies as a rental business, you are still allowed up to 14 days of personal use annually, or 10% of the total days it’s rented (whichever is greater), without affecting its classification. However, exceeding these limits may result in the IRS reclassifying your property as a personal residence, which could restrict certain deductions.

For example, if you rent your property for 200 days in a year, you may use it for up to 20 days (10% of 200) for personal purposes without changing its rental business status. However, any personal use beyond these limits could reduce the deductible portion of your expenses.

Non-Personal Use Days: Repairs and Maintenance

It's also important to note that time spent on the property for repairs or maintenance does not count toward personal use days. For instance, if you spend a weekend replacing appliances or fixing plumbing, those days can be excluded from your personal use tally. This distinction allows you to maximize personal enjoyment within the limits of the 14-day rule while maintaining your tax benefits.

Is My Property a Rental Business or Just a Second Home?

Now that you know the 14-day rule, let’s explore how it helps define your property’s status. If you’re planning to rent the property for more than 14 days, the IRS will likely classify it as a rental business. You can then benefit from a variety of tax deductions, such as mortgage interest, property taxes, and maintenance costs. However, the IRS explains that “if you rent a dwelling unit to others that you also use as a residence, limitations may apply to the rental expenses you can deduct” (IRS, Topic No. 415).

For homeowners who want to avoid turning their vacation home into a full-time rental, the 14-day rule offers a clear line: rent fewer than 15 days, and you stay in personal-use territory, free from the obligations of running a rental business.

Track Personal and Rental Days Carefully

Keeping an eye on the number of days you rent versus the days you personally use the property is critical. The IRS sets a clear distinction for those who rent their homes: “you're considered to use a dwelling unit as a residence if you use it for personal purposes during the tax year for a number of days that’s more than the greater of 14 days, or 10% of the total days you rent it to others at a fair rental price” (IRS, Topic No. 415).

If you rent the property for more than 14 days, your property is inching closer to being classified as a rental business. This means different tax implications, especially when it comes to what expenses you can deduct.

Not All Time Spent at the Property Counts as Personal Use

If you're maintaining the property or doing repairs, those days don’t count towards personal use. For rental business purposes, the IRS allows you to exclude maintenance days from your personal use tally. According to the IRS, “any day that you spend working substantially full-time repairing and maintaining (not improving) your property isn't counted as a day of personal use” (IRS, Topic No. 415).

This can make a big difference when you're trying to maximize tax benefits from a rental business. Keeping records of maintenance or repair work, along with receipts, can ensure you’re not mistakenly counting those days as personal use.

Keep Detailed Records Regardless of Your Goal

Whether you’re running a rental business or renting your property occasionally, one key to staying organized is keeping meticulous records. These records will help you substantiate any deductions or exemptions you're claiming, as well as clarify your personal versus business use.

Documenting everything—from rental days to personal days to receipts for repairs—gives you solid backing in case the IRS takes a closer look. It also makes managing your tax returns a much simpler process at the end of the year.

Consult a Tax Professional for Guidance

Lastly, navigating the fine line between personal residence and rental business can get tricky. Consulting with a tax professional is one of the smartest moves you can make to avoid costly mistakes. They can help ensure you're following the right rules, whether you're only renting out for a couple of weeks or fully transitioning your property into a vacation rental business.

A professional will also help you maximize deductions and avoid any pitfalls that could hurt your bottom line.

Maximizing Deductions: What Expenses Can You Write Off?

Now that you’ve decided whether your property is a rental business or a home you rent out occasionally, it’s time to think about how to reduce your taxable income through deductions. If you’re operating a full-time rental business, understanding which expenses you can deduct is key to maximizing your savings. The IRS provides a range of deductions, including mortgage interest, property taxes, insurance, repairs, maintenance, and even utility costs.

According to the IRS, rental property owners can deduct “certain expenses, which may include mortgage interest, real estate taxes, casualty losses, maintenance, utilities, insurance, and depreciation” (IRS, Topic No. 415). However, if you’re sticking to the 14-day rule and renting occasionally, these deductions don’t apply—but you get the perk of keeping that rental income tax-free without the extra paperwork.

Below are some of the most important deductions to consider if you're running a rental business:

Mortgage Interest

If you’ve taken out a mortgage to finance your rental property, you can deduct the interest paid on that loan as a significant tax-saving measure. This deduction applies whether you have a primary mortgage or a home equity loan that you’ve used to improve the property. The IRS allows property owners to deduct interest on loans “used to acquire or improve your rental property” (IRS, Pub. 925).

For example, if you took out a loan to buy your vacation rental home and paid $10,000 in mortgage interest over the year, that amount can be deducted from your rental income. This deduction is particularly beneficial because mortgage interest tends to be one of the larger expenses for property owners.

It’s essential to keep meticulous records of all interest payments made throughout the year. Without proper documentation, you could miss out on one of the most substantial deductions available to rental property owners. This deduction, in effect, reduces your taxable income and helps you maximize the profit you make from your rental business.

Remember, this deduction only applies to properties classified as rental businesses. If you rent out your home for fewer than 15 days per year, you can’t claim this deduction under the 14-day rule.

Depreciation

Depreciation is a strategic way to spread the cost of your property over time, reducing your taxable income each year. The IRS allows you to gradually deduct the cost of your rental property—along with improvements—over its "useful life." For most residential rental properties, this useful life is set at 27.5 years (IRS, Pub. 527).

Let’s break it down with an example: say your rental property is valued at $275,000 (excluding the land value). Over the course of 27.5 years, you’ll be able to deduct approximately $10,000 per year in depreciation, reducing your overall taxable income. This deduction can be a powerful tool for lowering your tax burden, as it doesn’t require an out-of-pocket expense each year.

Depreciation also applies to certain improvements made to the property, such as adding a new roof or upgrading plumbing. However, keep in mind that repairs and maintenance are treated differently and can be deducted in the year they occur (more on that below).

Depreciation can be a bit tricky to calculate, so consulting a tax professional might help you ensure you’re claiming the correct amounts each year.

Repairs and Maintenance

Routine maintenance and repairs are part of the deal when owning a rental property, and thankfully, these expenses are deductible. The IRS allows you to deduct "ordinary and necessary" expenses to maintain the rental condition of your property (IRS, Topic No. 415).

For instance, if you need to fix a leaking roof, replace a broken window, or repair a faulty heating system, those costs can be deducted in full during the year the repairs occur. The key distinction here is between repairs and improvements. Repairs are tasks that keep the property in good working order, while improvements—like adding amenities to your Airbnb and its listing, such as a new hot tub or upgraded kitchen—must be depreciated over time as they add value or extend the property’s life.

Let’s say you spend $1,500 on roof repairs after a particularly bad storm. That expense can be deducted from your rental income, helping you offset the costs of maintaining the property and reducing your taxable income. It’s essential to keep all invoices and receipts for these repairs to back up your deductions if the IRS comes knocking.

Property Taxes

Property taxes can be one of the larger recurring expenses for rental property owners, and the good news is they’re fully deductible. The IRS allows you to deduct "state and local property taxes imposed on your rental property" (IRS, Pub. 527). This deduction can significantly reduce your taxable income and is one of the most straightforward to claim.

For example, if you pay $4,000 annually in property taxes, you can deduct that full amount from your rental income, lowering the taxable portion of your earnings. However, it’s crucial to remember that you can only deduct property taxes if the home is classified as a rental business. If you’re renting the home occasionally (under the 14-day rule), you won’t be able to claim this deduction.

To maximize this deduction, make sure to keep detailed records of your property tax payments. You’ll want to ensure that every payment is accounted for when you file your tax return, as this can be a significant expense that lowers your tax liability.

Insurance Premiums

If you’re paying for homeowner’s insurance, rental property insurance, or any other type of insurance to protect your rental property, those premiums are deductible. The IRS allows you to deduct insurance premiums for your rental property, whether for homeowner’s insurance or liability insurance (IRS, Pub. 527).

For example, if you’re paying $2,000 per year in homeowner’s insurance, that cost is fully deductible. This deduction applies to both short-term rentals and long-term rentals, as long as your property is classified as a rental business. If you’ve pre-paid for multiple years of insurance, you will need to prorate the deduction over the life of the policy.

Insurance for rental properties can be costly, especially in areas prone to natural disasters like hurricanes or earthquakes. But with this deduction, you can recover some of those costs by lowering your taxable income.

Utility Bills

If you’re responsible for paying utilities on your rental property, those costs are deductible. Utility expenses like electricity, gas, water, internet, and even trash collection can all be deducted from your taxable rental income, according to IRS guidelines (IRS, Pub. 527).

For example, if you spend $1,500 annually on utilities for your rental property, you can deduct that entire amount. This deduction applies whether you’re renting out the property full-time or part-time, as long as the property is considered a business.

However, if your tenants pay the utilities directly, you can’t claim this deduction. As always, it’s crucial to keep accurate records of these expenses to ensure that your deductions are valid and that you’re not claiming anything inappropriately.

Cleaning and Maintenance Services

Costs associated with cleaning your rental property or performing routine maintenance are fully deductible. This includes services like hiring a professional cleaner between guest stays, contracting landscapers, or even purchasing cleaning supplies yourself.

According to the IRS, you can deduct these “ordinary and necessary” cleaning and maintenance costs as part of your business expenses (IRS, Pub. 527). For example, if you pay $200 each time your rental is cleaned and you rent it out 10 times a year, that’s $2,000 in deductions right there.

Routine upkeep of your property is essential not only for maintaining its value but also for keeping your rental business running smoothly. Whether you’re covering the cost of pool maintenance or lawn care, these expenses can reduce your taxable income, leaving more money in your pocket.

Advertising and Marketing of Your Rental Property

If you’re paying to advertise your rental property, those costs are also deductible. Whether you’re creating a website, paying for online listings, or using print ads to promote your rental, those expenses are considered part of running your business and are fully deductible (IRS, Pub. 527).

For example, if you spend $500 creating a website for your rental property and another $300 on online ads, those costs can be deducted from your taxable income. Even hiring a professional photographer to take pictures of your property for listings qualifies as an advertising expense.

By keeping track of all your advertising and marketing costs, you can ensure that these expenses help reduce your taxable income. This deduction can be particularly beneficial for owners who rely on marketing to attract guests in a competitive rental market.

Legal and Professional Fees

Any legal or professional fees incurred in the operation of your rental business are also deductible. This includes fees for accountants, lawyers, or even property management companies. The IRS allows rental property owners to deduct "ordinary and necessary" professional fees related to the rental business (IRS, Pub. 527).

For instance, if you pay an accountant $1,000 to help manage your rental property’s finances or a lawyer to draft a rental agreement, those fees are fully deductible. These services can be essential for ensuring your rental business operates smoothly and stays compliant with local laws and regulations.

Hiring professionals can save you time and hassle, and the ability to deduct their fees makes this investment even more worthwhile.

Travel and Transportation

If you travel to your rental property to perform maintenance, show it to potential renters, or handle management tasks, you can deduct travel-related expenses, such as mileage, gas, or even airfare, if applicable. The IRS allows these deductions for travel “for purposes of collecting rental income or managing the property” (IRS, Pub. 463).

For example, if you drive 100 miles round-trip to your rental property, you can deduct that mileage at the IRS-approved rate. Keep detailed records of your trips, including dates, distances, and purposes, to ensure you can claim this deduction accurately.

If you’re flying to a rental property out of state, your airfare, lodging, and even meal expenses may be deductible if they are strictly for business purposes. However, personal trips to the property are not eligible for this deduction.

Commissions and Management Fees

If you hire a property manager to handle your rental business, their fees are fully deductible. Many rental owners find property managers invaluable, especially if they live far from their rental property or don’t have the time to manage it themselves.

According to the IRS, “you can deduct management fees paid to agents or property managers” (IRS, Pub. 527). Whether you’re paying a commission to a real estate agent for finding renters or a property management company to handle day-to-day operations, these costs are considered business expenses.

Let’s say your property manager charges you $300 per month, amounting to $3,600 annually. You can deduct that full amount from your taxable rental income. This deduction can be a significant relief for those who rely on outside help to run their rental business.

Supplies and Equipment

From cleaning supplies to maintenance tools, any items you purchase specifically for the upkeep or operation of your rental property can be deducted. According to the IRS, “supplies used in the rental business” are considered deductible expenses (IRS, Pub. 527).

For example, if you spend $500 on cleaning supplies, paint, and tools to maintain the property, you can deduct those costs. This includes everything from light bulbs to hammers, as long as the items are necessary for the operation of your rental business.

Tracking these smaller expenses might seem tedious, but they can add up quickly and offer a meaningful deduction when it comes time to file your taxes.

Casualty Losses

In the unfortunate event that your rental property is damaged due to a natural disaster, fire, or other casualty, you may be able to deduct the resulting losses. According to the IRS, you can claim "casualty losses" as a deduction, which can help offset the financial burden of repairing or replacing damaged property (IRS, Topic No. 415).

For example, if a hurricane damages the roof of your rental property, you can claim the repair costs as a deduction. However, it's important to note that insurance reimbursements may affect the amount you can claim. Keep detailed records of the damage and any expenses related to the repair or replacement.

Casualty losses can be complex, so it's a good idea to consult a tax professional to ensure you’re claiming this deduction correctly.

Professionals to Consider When Managing a Vacation Rental

As you step into the world of vacation rental management, surrounding yourself with the right professionals is essential to ensuring your success. From handling complex tax laws to maximizing your property's earning potential, these experts can provide valuable guidance and save you time and money. Let’s explore the key professionals you may want to partner with on your vacation rental journey.

1. Tax Professional or CPA

Navigating the complex tax regulations associated with vacation rental properties is not something you want to do alone. A qualified tax professional or CPA can help you understand the specific deductions available, like mortgage interest, property taxes, and depreciation. They can also ensure you're following the correct IRS rules for reporting your rental income, avoiding penalties, and maximizing your deductions.

A tax expert will be especially useful if you’re unsure about whether your property qualifies as a business or personal residence under the 14-day rule. They’ll help you avoid costly mistakes and may also advise on issues like passive activity loss rules (IRS, Pub. 925), giving you a clear path to minimizing your tax burden.

2. Real Estate Attorney

A real estate attorney can be a crucial partner when it comes to handling the legal aspects of your vacation rental. From drafting rental agreements to ensuring you're complying with local regulations, an attorney can provide the legal protections you need.

In addition, if you’re considering expanding your portfolio by purchasing more properties, a real estate attorney can guide you through the process, ensuring that everything is in place from a legal standpoint before you start renting out your new investment.

3. Vacation Rental Management Company

If you’re looking to maximize your property’s potential while minimizing your workload, partnering with a vacation rental management company like Home Team Vacation Rentals is a smart move. A full-service management company can handle everything from guest communication to pricing optimization, freeing up your time while still ensuring that your property is performing at its peak.

Working with Home Team Vacation Rentals not only helps you manage the day-to-day operations, but the management fees are also fully deductible. The IRS allows deductions for management fees, which include the cost of property managers, guest services, and marketing expenses (IRS, Pub. 527). With our expertise in marketing, guest experience, and smart pricing, we’re here to help you maximize your returns and minimize your stress.

4. Property Maintenance Specialists

Keeping your vacation rental in top shape is crucial for attracting high-quality guests and maintaining a steady flow of bookings. A property maintenance specialist can regularly inspect your home, handle repairs, and perform preventative maintenance to ensure that everything runs smoothly.

Not only does working with a maintenance professional ensure your home remains in excellent condition, but these expenses can also be deducted from your taxable rental income, which further helps you reduce your tax liability.

5. Insurance Agent

A vacation rental insurance agent can help you select the right coverage for your property, ensuring that both your investment and your guests are protected. Standard homeowner’s insurance might not cover damages that occur when your home is rented out, so it's essential to have specialized rental property insurance in place.



Not only is this coverage crucial for protecting your asset, but the premiums you pay for rental insurance are also deductible as part of your rental expenses (IRS, Pub. 527). Having an experienced agent in your corner will give you peace of mind while ensuring that you're protected from potential liabilities.

Why Home Team Vacation Rentals is the Perfect Partner for Your Property

Managing a vacation rental can be rewarding but also challenging. From guest management to pricing and maintenance, it can quickly become overwhelming. That’s where Home Team Vacation Rentals comes in—taking care of everything while maximizing your property’s potential.

Our full-service vacation rental management covers all aspects, including marketing, guest experience, and pricing strategy. Plus, the fees you pay us are fully deductible as a business expense on your taxes. The IRS allows you to deduct “management fees paid to agents or property managers” (IRS, Pub. 527).

But we offer more than just tax benefits.

• Maximizing Your ROI: We focus on optimizing your returns through smart pricing and data-driven strategies. By analyzing your property’s unique features and local market trends, we ensure it stays booked at the highest possible rates, maximizing your income.

• Holistic Marketing for Visibility: Our marketing strategy ensures your property stands out on platforms like Airbnb and VRBO. We tailor each listing to fit the platform, using targeted descriptions and stunning visuals to attract more guests.

• A Trusted Team of Experts: Founded by Airbnb Superhosts, our team brings years of experience in managing luxury vacation homes. We’re dedicated to delivering exceptional guest experiences while helping homeowners like you achieve financial success.

• Save Time and Reduce Stress: We handle everything, from guest communication to maintenance, so you can focus on other priorities. Plus, if you sign with us, we’ll waive your first month’s commission, letting you see the benefits right away.

With Home Team Vacation Rentals, you’re investing in expert management and a smart way to reduce your tax burden.

Works Cited

IRS. Publication 527: Residential Rental Property (Including Rental of Vacation Homes). Internal Revenue Service, https://www.irs.gov/pub/irs-pdf/p527.pdf. Accessed 17 Sept. 2024.

IRS. Publication 925: Passive Activity and At-Risk Rules. Internal Revenue Service, https://www.irs.gov/forms-pubs/about-publication-925. Accessed 17 Sept. 2024.

IRS. Publication 463: Travel, Gift, and Car Expenses. Internal Revenue Service, https://www.irs.gov/forms-pubs/about-publication-463. Accessed 17 Sept. 2024.

IRS. "Topic No. 415, Renting Residential and Vacation Property." Internal Revenue Service, www.irs.gov/taxtopics/tc415. Accessed 17 Sept. 2024.

Categories: Property Management, Investor