Unpacking the Tax Aspects of Short-Term Rentals
🡐 Back to Resources | August, 2025 | Written by Kurt Russell
Short-term rentals (STRs) can be highly profitable, but with extra revenue comes extra responsibility — especially when it comes to taxes. Unlike long-term rentals, STRs often face more complex rules for income reporting, deductions, and occupancy taxes.
Whether you’re just starting out or scaling your portfolio, understanding the tax implications of short-term rentals is essential to avoid costly mistakes and maximize your returns.
Why STR Taxes Are Different
Operating an STR is often considered more like running a business than simply collecting rent. Because guests stay for days or weeks rather than months, different tax laws apply.
Key differences include:
Self-employment vs. passive income: In some cases, STR income may be taxed as active business income.
Occupancy and lodging taxes: Many cities and counties require hosts to collect and remit hotel-style taxes.
Expense deductions: STR hosts can claim a wide range of deductions, but the rules differ from long-term landlords.
For an overview of switching strategies, read our guide on transitioning from long-term to short-term rentals.
Common Tax Obligations for STR Hosts
1) Federal Income Tax
All rental income must be reported. Depending on your level of involvement, the IRS may classify your STR activity as passive or active business income.
2) State and Local Occupancy Taxes
Many jurisdictions require hosts to collect sales or occupancy taxes, similar to hotels. Airbnb may handle this in some areas, but not everywhere.
Learn more about location-based advantages in our guide on investing in tourist hotspots.
3) Self-Employment Tax (When Applicable)
If you provide significant guest services — like cleaning, meals, or tours — your rental income may be subject to self-employment tax.
4) Property Taxes
Your county will still assess property taxes annually, but rates may rise if your property is reclassified as commercial or business use.
Deductible Expenses for STR Owners
The good news: STRs offer a wide range of potential deductions that can significantly reduce your taxable income.
Examples include:
Mortgage interest and property taxes
Utilities, Wi-Fi, and streaming services provided to guests
Cleaning and maintenance costs
Supplies and toiletries for guests
Insurance premiums
Depreciation of furniture and property improvements
For operational cost savings, see our guide on boosting profitability while minimizing expenses.
Record-Keeping Best Practices
Good records are critical for compliance and deductions. STR hosts should:
Track all income and expenses in accounting software like QuickBooks or Stessa
Save receipts for every deductible expense
Document personal vs. rental use of the property
Work with a tax professional experienced in STRs
Need help with systems? Explore our best STR software tools guide.
Risks of Poor Tax Planning
Failing to address STR-specific taxes can result in:
Unexpected IRS penalties
Back payments on occupancy or lodging taxes
Missed deductions that reduce profit margins
Strained cash flow during peak booking seasons
Disclaimer
Any tax advice given in this article is founded on the information given to us, current tax law, including judicial and administrative interpretation, and the facts. Tax laws are constantly changing, often retroactively, and this could lead to additional taxes, interest fees, or penalties. Our advise might not be applicable if the information given to us is inaccurate or insufficient, or if the law or how it is interpreted changes. After the date of this agreement, we are not obligated to update our advice to reflect changes in the law or jurisprudence.
The Takeaway
Taxes can feel overwhelming, but they don’t have to derail your short-term rental business. By understanding your obligations, keeping detailed records, and leveraging deductions, you can reduce liability and improve profitability.
👉 Want help aligning your rental strategy with financial success? Fill out the form below to schedule your free consultation with Clear Stay Properties and learn how we simplify STR management from booking to tax season.
