Tax Deductions for Your Vacation Rental Business 2022
John Candelario (00:01):
Hi everybody, John here. Thanks for tuning in to another episode of Vacation Rental and Airbnb Mastery. Today. Let’s talk about saving money on your taxes. Those year end taxes, you wanna make sure you can deduct every eligible expense to reduce how much tax you’re paying. So let’s talk about with your vacation rental. What is actually tax deductible here is seven plus tax deductible expenses. Now, I do want to say before we get into it, you should consult your CPA or enrolled agent instead of just listening to a podcast and going off that, although I know this information is found, you always want to consult your own tax professional as everyone’s situation is extremely different. You want to make sure that your tax professional is able to assess your situation and make sure your deductions are in line with what’s allowed. Okay, so let’s get into it.
Deduct repairs, maintenance, and cleaning expenses
The number one deductible expense here is going to be repairs, maintenance, and cleaning. Anytime you have to pay for something to get fixed, anytime you need to do preventative maintenance or upkeep with the home, like fixing a toilet, changing the AC filter, having the plumber come in, having the electric fix electrician, fix some wiring, having cleaning, getting done, all of this is tax deductible. So you want to make sure you keep all of your invoices and all of your receipts and keep track of your expenses in a good bookkeeping software. So at year end, it makes it so much easier to deduct these expenses.
Deduct transportation expenses when you travel to your vacation rental to work on improvements…
Number two, you want to make sure that any sort of transportation expenses for property management, maintenance, or cleaning that you actually spent are deducted. So let me be clear with this. If your rentals your place of business, you can deduct any sort of fees from actually traveling to the rental to do maintenance and management on your own rental.
So you want to make sure you keep track of your mileage, your gas, any sort of expenses you incur traveling to the property. To do work, you want to keep a good record of how many miles you spent, how much gas you spent, and then what you were doing there when you traveled there. You need these records for the IRS in case you do undergo an audit.
You can deduct your utilities and tax expenses to reduce your vacation rental taxable income
Number three, utilities and taxes. So providing your guests with electricity, water, wifi, and other essentials that is tax deductible. So anytime you get a bill from your utilities company, keep that. Also, tax preparation services, anything you pay to prepare your taxes or bookkeeping is also tax deductible. That was number four. Now onto number five insurance. So we just had Hurricane Fiona and hurricane E enroll through and insurance is a huge cost of doing business with your vacation rental.
Vacation rental insurance expenses are deductible as well
So any sort of insurance policy you have on the home, whether it’s homeowner’s insurance or vacation rental insurance, any sort of supplemental insurance, you want to make sure you keep great documentation. Keep all those receipts because that is also tax deductible.
Marketing and advertising expenses for your vacation rental property are a big tax deduction
Number six, marketing and advertising costs. So anything you spent money on, like Airbnb, service fees, if you spent money on Facebook ads, Google advertising, designing your own book direct website, all of these are eligible marketing expenses that you can take record of. Keep your invoices, keep your receipts because all of it’s tax deductible. And for heavy advertisers, this could be a pretty big deduction for you.
Don’t forget, your supplies like linens, towels, and guest amenities are also deductible expenses, so keep your receipts and invoices
Onto number seven, here’s a big one. All of your linens, your sheets, your towels, your amenity and supply, all of that is tax deductible. So anytime you go to Walmart, target, Costco, if you buy stuff from direct textile online, if you purchase any sort of supplies for the home, that’s tax deductible.
And yes, you do need those receipts. So anytime you restock amenity, if you buy new linens, if you buy towels, all of that is also a big tax deduction for you at year end. Number eight, here’s a big one. If you have purchased a ton of appliances in furniture because you were just getting your place set up for the first time, you can deduct all of it in year one. Now this is only for people who have done this between September 27th, 2017 through December 31st, 2022. But you are eligible for a hundred percent bonus depreciation and it applies to any new or used property that you place into service from those dates. If you carry a mortgage, don’t you forget about deducting your mortgage interest as well. It’s a huge ride off and it’s one of the main benefits of financing a property if you want that route.
So don’t forget to deduct your mortgage interest as well.
Number 10, did you know you can deduct your property taxes as well? You can take a personal deduction for property taxes and it’s usually capped at $10,000. But similar to deducting your mortgage interest, this limit doesn’t apply If your property’s operated as a rental business, so lucky for you as an owner of a rental property, you can actually take that full amount of property tax as a business deduction.
Management Company fees and commissions are tax deductible
Number 11, any commissions you pay to management companies or property management fees that you need to run the property, keep good records from your property management company because that’s tax deductible as well. Number 12, legal fees. So if you got a rental agreement set up with a lawyer, any sort of legal fees you incur doing this business, if you had a lawsuit, anything like that you can use as a tax deduction on against your vacation rental business to save you some money as well.
Any sort of software you use, like uh, dynamic pricing software, property management software, bookkeeping software, you can deduct those fees too as long as it’s used to run your vacation rental business. So software that help you run your calendar, that help you keep your books that’s eligible and you can keep those records as a tax deduction too.
Can I deduct travel expenses to my vacation rental property if I am taking a vacation and working at the same time?
Here’s a question that I hear so often. A lot of owners wonder if they can travel to their property, go on vacation and make a couple of repairs and write off the airline tickets, wanna write off the meals, right off the repairs, right off basically a vacation while they’re working. That’s a, it’s an aggressive stance and it’s a both a yes and a no. If you’re traveling to your property to actually make meaningful repairs or do renovations, you need to track every single thing that you’ve actually done at the property.
So I’ll give you an example. If you’re going to repair, uh, your kitchen cabinets and put in a new island in your kitchen, you need to keep track of what days you did the work, what supplies you bought when you were there, how long the work took. And these records need to be pretty meticulous. You have to actually put what you spent every day, what you did every day, the time it took you, because you are going to need to justify and defend that expense. You can’t expect the IRS just to take your word for it. You actually have to back it up with some concrete evidence. So if you’re not into, you know, defending yourself and taking an aggressive stance, um, this one may not be for you. But if you do keep good records and you’re actually traveling to do work and it’s like a five day thing that that’s something that I’ve seen owners pretty much they’re able to deduct.
QBI Deduction for Vacation Rentals
But sometimes if you’re traveling over a certain period of time, like you’re there for a month, the time period falls into a big gray area and it might actually not be deductible. So this all depends on how long your work case actually was, and this is definitely a question you want to consult your tax professional on. There’s also a deduction called the qualified business income deduction, the Q B I deduction. And when you have your vacation rental home, it’s a business and you might be doing work on this business and it essentially is a small business. So you may be eligible for up to 20% of your total earned income back, but you need to work at least 250 hours doing services each tax year for what is your own vacation rental company. You must have like a relevant pass through entity such as an llc.
And then you need to attach a statement to the tax return for the tax year attached to the deduction that you’re requesting and it must be done every year. Then you need to maintain really good records and documentation, everything from how long you spent working, what you did while you were working, um, the days the services were performed, what you did and who did it. All of this needs to be tracked if you’re going to defend, um, trying to get a QBI deduction, but you know, your time actually is money and it may be worth your while to go about this, but any income you actually earn, you may have to pay personal income taxes on it as well. So this is another one that if you’re planning to take advantage of a Q B I deduction, you may want to consult your tax professional for this just to be on the safe side.
Schedule C and Schedule E for Vacation Rental Taxes
The form you’re gonna use to deduct all these expenses is either gonna be a Schedule C form or a Schedule E form. The Schedule C is really for those owners who do this full-time, they’re running vacation rental businesses, fulltime, that’s for you. But the Schedule E is, if this is like a side hustle and you just got a couple of reservations, the Schedule E is gonna be where you want to report these expenses. If you use your property as a vacation rental, more than 50% of the time, you may be able to take advantage of what’s called section 1 79 179, that this section of the tax code allows you to write off lots of costs, up to a million dollars of cost as of 2021 of certain property using the business. Um, you can write off things like fire systems, your roof getting done, your HVAC systems, security systems, and much, much more.
Major Home Improvements Can Be a Huge Deductible Expense
All these major improvements may be eligible for a huge tax deduct deduction. So if you’re doing any major work, you may want to also look into section 1 79 of the tax code.
How is lodging and occupancy tax different from vacation rental income taxes?
Now, it’s important to note that when you’re filing these taxes, this is not the same thing as lodging an occupancy tax. This is for your federal income taxes, for your business taxes, lodging tax, and hotel tax is something completely separate. That’s tax paid on your total reservation amount inclusive of all fees, clean fees, poor heating fees, any fees, and you’re paying that more of a sales tax to your state, county, or city government. So for example, in Disney, we pay our lodging tax to our Osceola County, the state of Florida and Airbnb collects for Florida at least the state sales tax and remits it automatically. We still have to file a zero return each month, even if Airbnb’s remitting the taxes to the state, the county in our particular county, we actually need to collect that tax.
So it’s part of our Airbnb payout and we need to remit it every single month to Osceola County. That’s the county by Disney World. So you need to know for wherever you’re renting your vacation rental, what your tax rules are when it comes to lodging tax. You for this podcast, just know that it’s completely separate from your federal income taxes and your business taxes. Lodging tax is completely separate and you, that’s a totally different matter. And we have a podcast episode explaining what that is. Also to note, you could deduct things like credit card interest and loan interest. So if you have a home equity line of credit or if you have a credit card you use for business, you can actually deduct the interest expenses on those credit items, the service fee, you as a host, pay to Airbnb or VR or any platform you’re on that’s tax deductible.
So at the end of the year, you can print out on Excel or on a report, find out in total what those fees were, so you can deduct that from your rental income as well. I hope this was helpful. There are more deductions out there, but these were the major ones that I really want you to know about as you’re heading into tax season. If you have questions, I do recommend you consult your personal CPA or your business accountant, but you can also contact me if you have a question. I’m happy to point you in the right direction.
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