The Vacation Rental Tax Rules and Guidelines You Need for Filing Taxes

While maybe not the most enjoyable use of time, filing taxes is an essential part of running a healthy (and legal!) vacation rental business. 

It’s also a really complex subject. Vacation rental tax rules vary greatly from state to state, and even in different counties or cities. This can make it difficult to navigate the many requirements with confidence.

That’s why we’ve compiled some of the most common tax questions vacation rental owners want answered. Though Evolve cannot advise you on how to file taxes, our dedicated team of tax experts share valuable tips and tools to help make the process easy. From the different types of taxes you may be responsible for remitting to the nuances of jurisdictions, here are the vacation rental tax guidelines you should consider.

In This Article: 
What Kind of Taxes Do I File As a Vacation Rental Owner?
How Do Vacation Rental Tax Laws Differ By Location?
How Do I Collect Vacation Rental Taxes From Guests?
What Deductions or Exemptions May Apply to My Vacation Rental?

What Kind of Taxes Do I File As a Vacation Rental Owner?

There are three main categories of taxes vacation rental owners need to think about each year.

1. Income Tax

Income tax is what you pay the federal and/or state government annually based on short-term rental earnings, minus possible deductions (more on deductions later). It’s just like any other job you hold; you report alongside other sources of income and get taxed accordingly.

2. Business Taxes

Business taxes are imposed directly on owners for conducting business and typically cannot be passed on to your guests. They have a variety of names, including gross receipts tax, business and occupation (B&O) tax, business privilege tax, and more. These taxes are the owner’s responsibility as the provider of goods or services, and are paid to states, counties, and/or cities. 

3. Vacation Rental Taxes

Often called short-term rental taxes, these are imposed by states, counties, and cities. Depending on your taxing jurisdiction, they can also be referred to as a number of other names. Occupancy tax, lodging tax, and transient tax are a few common terms that, at a high level, are synonymous. The rates and rules that apply to each, however, could look very different from jurisdiction to jurisdiction. 

Sales tax also falls under the umbrella of vacation rental taxes. In some areas, lodging tax is collected but sales tax is not, while in others sales tax is collected instead of lodging tax (leading many owners to mistakenly think they’re interchangeable). Some owners may even have to collect and remit both. It’s best to work with a tax expert to determine which vacation rental tax rules apply in your jurisdiction, and the local terminology used to describe them.

What’s more, vacation rental taxes differ from income and business taxes because they’re technically paid by your guests — it’s the add-on everyone always sees on the bill. But as the owner, you’re responsible for registering for all taxes you are required to collect, identifying the tax rate(s) for your property (the Avalara MyLodgeTax tool can help), collecting those taxes, and then remitting the totals to your local and state governments.

Good to Know: Some vacation rental management companies (like Evolve) will collect and remit vacation rental taxes on an owner’s behalf in certain states or jurisdictions.

How Do Vacation Rental Tax Laws Differ By Location?

The short answer: a lot. And unfortunately, there’s no simple way to explain how widely vacation rental tax rules vary because there aren’t just state-by-state discrepancies. There may also be differing county, city, and special district tax regulations to take into consideration. (Again, it’s important to talk to a professional who can help you identify your specific property’s tax requirements.) 

Here are a few other vacation rental tax rules and regulatory considerations that our tax experts say aren’t standardized: 

1. Licensing Regulations 

On both state and local levels, authorities set specific standards for the types of licenses and permits you need to run a vacation rental business. You may need a general business license, a tax license, a short-term rental permit, or more from your state and/or local governments. (Avalara MyLodgeTax can help you identify, obtain, and maintain what’s needed for your property.)

2. Filing Periods

While many assume April is tax season across the board, the reality is the timing around vacation rental tax filing can depend on your tax registration, the types of taxes you must collect, and regulations enforced by state and/or local jurisdictions. Our team of vacation rental tax experts say some owners need to collect and remit lodging or sales taxes annually, but others must do so on a quarterly — or even monthly — basis. It’s important to understand what your personal tax calendar looks like to make sure you hit the appropriate deadlines and establish a well-oiled system for remittance.

3. Taxable Fees and Charges

Are cleaning fees subject to tax? What about pet fees, extra guest charges, or parking costs? No plot twist here: taxable fees and charges differ depending on your property’s location. It’s typical for standard cleaning fees and nightly rates to be subject to lodging tax, but less universally-applicable charges like pet or parking fees might not be. That’s why, once again, it’s important to be clear on your local vacation rental tax rules so you can charge the correct rates (more on that below).

How Do I Collect Vacation Rental Taxes From Guests?

Once you’ve worked out the lodging and/or sales tax rates, filing periods, and taxable charges for your property, it’s time to start collecting vacation rental taxes from guests. Here’s a step-by-step guide for getting organized so you can accurately fulfill all requirements.

 1. Get Your Paperwork in Order

Apply for the licenses and permits you need with your state and local governments. Organize a calendar for filing period reminders, and create a centralized location to keep track of tax records.

Fun fact: Evolve owners have quick access to user-friendly Financial Reports, so all tax info stays organized and easy to grab once it’s time to file.

2. Collect on Each Booking

In addition to charging standard nightly rates and fees, the correct tax rate required by relevant vacation rental tax rules should be applied to guest charges accordingly. In your financial records, keep the tax rates you charged clearly marked as a separate line item, so it’s easier to calculate totals at the end of each filing period.

3. File and Pay

Whether you have to file vacation rental taxes monthly, quarterly, or annually, stay on top of deadlines. With a clear understanding of your jurisdiction’s expectations, this part of your process should become operationally streamlined. 

4. Renew Licenses When Necessary

Most licenses and permits have expiration dates — some jurisdictions require renewal on an annual basis, while others have multi-year terms — so make note of corresponding deadlines, along with any updated conditions for eligibility. (Some state and local governments send reminders ahead of time; others may not.) Renewal is ultimately the responsibility of the owner, so mark your calendar with enough leeway to make sure you remain in compliance.

What Deductions or Exemptions May Apply to My Vacation Rental?

Great news: you are allowed to claim deductions on your federal and/or state income tax. Owners can write off expenses like mortgage interest, travel costs, and the maintenance fees of home improvements. Familiarize yourself with all of your deduction options before you file income tax returns, and keep in mind that personal use of your vacation rental may impact expense claiming. 

As a whole, vacation rental taxes are a different story. Our tax experts say there are rarely any deductions applicable to the tax you charge guests and then remit at state and/or local levels. But there may be exemptions available based on a longer length of stay by your guest.

Same goes for business taxes: while there are typically no exemptions available, deductions may or may not be possible. 

The gray area of it all is why — and we really can’t emphasize this enough — it’s best to consult with a tax professional to understand your options further.

Get Organized with Evolve 

Understanding vacation rental tax rules can be tricky, and there’s a lot an owner is responsible for keeping track of. That’s why, first and foremost, we recommend hiring a tax professional who can help you nail the details. 

Mastering vacation rental taxes is just one part of reaching vacation rental stardom. To help make your property a five-star success, grab our free downloadable guide, The 6 Biggest Secrets to Making Thousands More with Your Vacation Rental.  

It’s full of must-have insights and tips for achieving success, from getting more eyes on your rental with top-notch marketing and a dynamic pricing strategy to creating unforgettable guest experiences.