Whether you rent out a second home for a few weeks a year or manage a portfolio of short-term units, the tax treatment depends on how it's structured and operated.
Rental vs. Business: Classification Comes First
Short-term rentals rented for an average of seven days or less per guest may be treated as an active trade or business if you provide substantial services. Business classification opens the door to the 20% QBI deduction but may trigger self-employment tax.
The 14-Day Rule
If you rent out a personal residence for 14 days or less in a year, you don't have to report the rental income at all. Once you exceed that threshold, the income becomes fully reportable.
Self-Employment Tax Considerations
When you provide substantial services to guests during their stay — meals, daily housekeeping, entertainment — the IRS may subject the income to SE tax. Services by independent third parties don't typically trigger this.
State and Local Considerations
Occupancy taxes, gross receipts taxes, permit requirements, and zoning restrictions all vary by jurisdiction. If you own rental property in a state where you don't live, you may still owe state income taxes there.
