A Vacation Rental Owners Guide to Tax Season

Vacation Rental Taxes

Owning a vacation rental business is extremely rewarding, however, it’s still a business and susceptible to taxes. We’re diving in deep about what vacation rental owners need to know about paying taxes in the U.S. and the deductions they may be eligible for.

The 14-Day Rule

If you rent your property for less than 14 nights a year, you may not need to report the rental income. However, this also means that you cannot deduct any expenses. If you do rent your property more than 15 days a year, it is officially considered a rental property and is for several deductions. To deduct anything from your taxes, you will have to determine the number of days guests were living in the rental property, divided by the total days of use.

W-9 and 1099 Forms

Many vacation rentals use online property platforms to list their business. These platforms withhold a percentage of your gross rental income if you do not provide them with a W-9 form.

According to Charles Schwab, “Rental services like Airbnb generally submit a 1099 to the IRS reporting your rental income. So be sure to keep good records of your rental income as well as fees paid to the rental service and all your expenses.”

Determining Quarterly Taxes for Vacation Rental Businesses

Generally, if you’re expected to owe a tax of $1,000 or more when your tax return is filed, you will have to make quarterly tax payments. Depending on where you live and where you operate your vacation rental properties, you will need to pay taxes to the federal government and the state. To find out more about quarterly estimated tax payments, visit the IRS Estimated Taxes Guide.

Learn What Is and Isn’t Tax Deductible

Depending on what purchases you make for your vacation rental business, you may be able to write off a few things such as insurance. As always, make sure to discuss any deductions with a tax professional.

Is Business Insurance Tax Deductible?

Navigating the tax code can be complex for businesses of all sizes and sectors. Specifically, business owners may question whether their business insurance is tax deductible. In general, the answer is yes. According to the IRS, business owners can deduct ordinary and necessary business expenses. This means that several types of commercial insurance premiums are deductible.

Deductible Premiums

The following types of business insurance premiums can typically be deducted:

Commercial property insurance: This coverage can help pay for repair or replacement costs if a business owner’s commercial property gets damaged by a covered event (e.g., fire, theft and vandalism).

General liability insurance: This coverage may assist with the resulting expenses if a business owner is held responsible for third-party injuries or property damage.

Business interruption insurance: This coverage may assist with lost income and ongoing expenses if a business owner is forced to temporarily close their doors due to a covered incident.

Professional liability insurance: This coverage can help pay for the resulting costs if a client or customer claims a business owner’s services were negligent or otherwise inadequate.

Other types of insurance that can be deducted include employee health and life insurance premiums. Additionally, state unemployment insurance fund contributions may be deductible as taxes depending on applicable state laws.

Nondeductible Premiums

Some business insurance premiums generally cannot be deducted, such as:

Loss of earnings insurance that can help pay for lost income due to a business owner’s sickness or disability.
Life insurance where a business owner is directly or indirectly included as the policy’s beneficiary.

Funds placed into a self-insurance reserve are also nondeductible.

We’re Here to Help

There are several nuances regarding tax filings and vacation rental business owners need to ensure they adhere to applicable regulations. Consult a trusted tax professional to learn more and determine which expenses can be written off.

To learn more about protecting your vacation rental business through CBIZ Vacation Rental Insurance, request a free quote today!

This blog may contain scenarios that are provided as examples only. Coverage is subject to the terms, conditions and exclusions of the policy issued. The information provided is general in nature and may be affected by changes in law or the interpretation of such laws. The reader is advised to contact a professional prior to taking any action based upon this information.