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Short-term rental income is taxable, but the tax code also allows many deductions that reduce what you owe. Depreciation alone can create thousands of dollars in paper losses each year. With operating expense deductions, the 14-day rule, and the STR tax loophole for material participants, many hosts owe far less tax than their gross revenue suggests.
This guide explains how STR income is taxed and covers each major deduction. For the list of expenses themselves, see our STR expenses guide. This page covers how those expenses reduce your tax bill.
How Airbnb income is taxed
The IRS taxes rental income from Airbnb, Vrbo, or any other short-term rental platform as ordinary income. You report it each year on Schedule E (Supplemental Income and Loss) of your federal tax return.
Deductions lower your taxable rental income, not the revenue you collect. You keep the same revenue and owe tax on less of it.
Example: how deductions work
You collected $40,000 but pay tax on only $22,000. Depending on your marginal rate, the $18,000 in deductions saves you thousands in tax.
The 14-day rule
If you rent your property for 14 days or fewer per year and it qualifies as a home you used personally under IRC Section 280A, the rental income is generally tax-free. You do not report it on your tax return. You also cannot deduct any rental expenses for those days.
The rule applies whether you rent a single room or the entire property. It is in IRC Section 280A(g).
Airbnb and other platforms may still issue a 1099-K for the gross payments they processed, even if your total rental days are under 14. If the IRS receives a 1099-K showing income, document the 14-day exception on your return so the IRS does not question the unreported amount.
Most STR investors will not use this rule. If you run the property as an active rental business, you will pass 14 rental days early in the year. The larger tax benefits come from the deductions below.
Deductible operating expenses
The IRS lets you deduct "ordinary and necessary" business expenses from your rental income. These are the costs of operating and maintaining the rental. For what each category costs, see our complete STR expenses guide.
Platform fees
Airbnb's host service fee is fully deductible, whether it is the 15.5% single fee most hosts pay or about 3% under the split fee. Vrbo's 12% pay-per-booking fee is also deductible. Each dollar of these fees reduces your taxable income by a dollar. See our Airbnb fees breakdown for each fee model.
Cleaning and turnover costs
Professional cleaning between guests, laundry services, cleaning supplies, and restocked consumables are all deductible. They count as ordinary business expenses because they are tied directly to earning rental income.
Utilities
Electric, gas, water, internet, and trash service are deductible. If you use the property both personally and as a rental, you can deduct only the rental share. Calculate it as rental days divided by total days of use.
Insurance
Premiums for your own STR insurance policy are deductible. Airbnb's AirCover program is not that policy. A dedicated commercial STR policy typically costs $1,500 to $3,500 per year, depending on property value and coverage level.
Repairs and maintenance
You can deduct repairs in full in the year you incur them. Fixing a leaky faucet, patching drywall, or replacing a broken window is a repair. A new roof, a new deck, or a bathroom remodel is an improvement, which you must capitalize and depreciate over time. The IRS draws the line by asking whether the work restores the property to its original condition (a repair) or adds new value (an improvement).
Property management and co-host fees
Property management software subscriptions and co-host commission fees are deductible business expenses. If you pay a co-host 10-25% of revenue, that entire amount reduces your taxable rental income.
Supplies and guest amenities
Toiletries, coffee, towels, linens, kitchen supplies, and other items you provide to guests are deductible as ordinary business expenses. Each turnover costs little, but the total adds up over a year of hosting.
Professional services
Accountant and CPA fees, legal fees, and bookkeeping software subscriptions are deductible. Dynamic pricing tools like PriceLabs are also deductible as business software.Partner link. STR Numbers may earn a commission.
Depreciation
Depreciation is the largest and most misunderstood deduction for STR owners. It lets you deduct the cost of the building, not the land, over its useful life without spending any more cash.
Residential rental property depreciates over 27.5 years under the Modified Accelerated Cost Recovery System (MACRS). You can start depreciating as soon as the property is "placed in service," meaning it is available and ready for rental use.
Depreciation example
This is a paper loss. You deduct $8,727 from your rental income each year without spending more cash. Over 10 years, depreciation alone gives you $87,270 in deductions.
A cost segregation study can speed up depreciation. It identifies building components, such as appliances, fixtures, cabinetry, landscaping, and paving, that you can depreciate on 5-year, 7-year, or 15-year schedules instead of 27.5 years. That moves more of the deduction into your first years of ownership.
Depreciation is "recaptured" when you sell the property. Real-property depreciation is generally taxed as unrecaptured Section 1250 gain, capped at 25%. Personal-property recapture can be treated differently. Depreciation still helps, but the savings are often deferred rather than permanent, so include recapture in your long-term investment plan.
See how deductions affect your returns
Run a full deal analysis to see how depreciation and operating expense deductions change your investment returns.
Open Deal AnalyzerThe short-term rental tax loophole
STR investors ask about this strategy more than any other, and if you qualify it can be one of the most valuable.
Under normal tax rules, rental income is "passive" income. Passive losses, including depreciation, can offset only passive income. They cannot offset your W-2 wages, business income, or other active income. That limits what depreciation saves most landlords.
The STR loophole applies when the average guest stay at your property is 7 days or fewer and you materially participate in the rental activity. In that case the IRS treats the income as non-passive, so your losses, including depreciation and cost segregation deductions, can offset W-2 income and other active income.
Requirement 1: average stay of 7 days or fewer
Calculate your average guest stay by dividing total rental nights by the number of bookings. Do not assume you meet this threshold because the property is listed as a short-term rental. Document your actual stays for the year.
Requirement 2: material participation
Most STR hosts rely on one test. You must spend 100 or more hours on the STR activity during the year, and more hours than any other person involved, including co-hosts and property managers. Other material participation tests exist.
How it differs from REPS
Real Estate Professional Status (REPS) is a separate path. It requires 750+ hours per year in real estate activities and more time in real estate than in any other profession. The STR loophole sets a much lower bar of 100+ hours and a short average stay. The two are separate strategies.
The One Big Beautiful Bill Act (passed July 2025) retroactively restored 100% bonus depreciation for eligible property placed in service after January 19, 2025. Qualifying assets identified in a cost segregation study can be fully depreciated in year one. That creates a large first-year paper loss that offsets active income. Tax law changes often, so confirm current bonus depreciation rates with your CPA before you rely on this benefit.
Qualified business income (QBI) deduction
If your STR qualifies as a trade or business under Section 162 or meets the IRS rental real estate safe harbor requirements, you may be able to deduct up to 20% of qualified business income under the QBI deduction.
The One Big Beautiful Bill Act made the QBI deduction permanent, but the rules are technical and limited by income. Ask a CPA for current details on how QBI applies to your rental.
At higher income levels, income thresholds limit the deduction. Not every STR qualifies, and the rental real estate safe harbor has recordkeeping and eligibility requirements. A CPA who works with rental properties can determine whether your rental counts as a Section 162 trade or business or qualifies under Rev. Proc. 2019-38, and can file the elections you need.
Mortgage interest and property taxes
Mortgage interest on investment property is generally deductible against rental income. You deduct it on Schedule E as a rental expense, separate from the itemized-deduction rules for a personal residence.
Property taxes are also fully deductible as a rental expense. After depreciation, mortgage interest and property taxes are often the two largest deductions.
These deductions lower the income on your tax return, which is one reason DSCR loans are popular with STR investors. DSCR lenders qualify you on the property's income instead of your personal tax returns, where deductions may have lowered your income.
What you cannot deduct
Personal use days
If you use the property personally, expenses must be prorated between personal and rental use. Only the rental portion is deductible.
Capital improvements
You cannot deduct the full cost of a new roof, addition, remodel, or other improvement in year one. You capitalize it and depreciate it over its useful life. For startup and setup costs, the same rule applies to major improvements.
Fines and penalties
Fines from regulation violations, zoning penalties, or other government-imposed penalties are not deductible.
Commuting costs
Travel to and from a property you also live in counts as commuting and is not deductible. Travel between separate rental properties or to a property in a different market is deductible.
Land value
Only the building and improvements depreciate. The IRS does not treat land as losing value over time, so you cannot depreciate it.
Record-keeping
Every deduction on this list depends on your records. If you cannot document an expense, you cannot deduct it.
Separate bank accounts
Keep rental income and expenses in a dedicated bank account. Mixing personal and rental money makes tax prep harder and draws scrutiny in an audit.
Save all receipts
Document every expense with receipts, invoices, or bank statements. Digital copies are acceptable. The IRS can request documentation for any deduction you claim.
Track personal and rental use days
Log every day the property is rented, used personally, or vacant. The log determines what you can deduct on a mixed-use property and whether the 14-day rule applies.
Use accounting software
QuickBooks, Stessa, or a well-organized spreadsheet all work. Categorize expenses the same way all year so tax preparation is simple.