The April 15 deadline for federal income taxes is coming up, and if you’re a U.S. short-term rental host, you probably have taxes on your mind. But it’s important to know that you probably have more than one kind of tax to pay.
In addition to income taxes, most vacation rental operators are also responsible for short-term rental lodging taxes. In order to make sure you’re complying with all your tax obligations, it’s important to understand the requirements of each kind of tax.
In short, income taxes are levied by the federal government and most states, based on your income from short-term rentals and other sources. These are paid by you out of your own pocket and filed once a year by the April 15 deadline.
Short-term rental lodging taxes, on the other hand, are local taxes that are actually paid by your guests. However, as the host, you’re responsible for collecting them from your guests and remitting them to the local tax authority. In most cases, these are filed several times a year.
Here’s a deeper dive into the differences between these two types of taxes.
Income taxes are levied by the federal government and most states. However, there is no national short-term rental tax; lodging taxes are all local in nature. Short-term rental taxes may be levied by states, counties, cities, or special districts.
Because of this, the tax laws for short-term rentals completely depend on the property’s exact location. In order to comply, short-term rental hosts need to know which local tax jurisdictions govern their property and which taxes each jurisdiction levies on short-term rentals.
Often, a single property may be subject to several different short-term rental taxes from various jurisdictions. Sometimes, state tax jurisdictions collect both state and local taxes, so taxpayers only have one jurisdiction to deal with in terms of filing and payment. However, in other places, you may have to file and pay each jurisdiction separately.
What’s in a Name?
While it’s pretty easy to figure out what income taxes are by their name, short-term rental taxes may go by many different names. They may be called sales taxes, hotel taxes, lodging taxes, occupancy taxes, transient taxes, tourist taxes, bed taxes and more. Each different tax has a unique rate and rules.
Once again, the name of the tax, rates and requirements for hosts all depend on the exact location of your property and the tax jurisdictions that govern it.
When you pay income taxes, you pay them out of your own pocket. In contrast, short-term rental taxes are paid by your guests in addition to their bill for staying at your property. So, while short-term rental lodging taxes may raise the total price you charge your guests, that increase is paid by your guests, not by you.
However, tax jurisdictions hold you, as the vacation rental operator, responsible for collecting these taxes and passing them on to the jurisdiction.
At the federal level, a standardized set of rates applies. While taxpayers pay different rates according to their income levels, the same overall set of rates applies to everyone. Short-term rental tax rates, on the other hand, are generally set at one rate that applies to all short-term rental transactions — but only within that particular jurisdiction.
When a short-term rental is subject to more than one jurisdiction, more than one tax rate may apply. The final rate charged to the guest is a combination of all the different taxes that apply to that particular property.
For example, in San Antonio, vacation rental operators must collect a 9 percent hotel occupancy tax for the city, comprised of a 7 percent general occupancy tax and an additional 2 percent for Convention Center expansion. They must also collect Bexar County’s hotel occupancy tax, at 1.75 percent and a 6 percent hotel occupancy tax imposed by the state. Combined, these taxes add up to 16.75 percent of the bill, which is the total rate that short-term rental hosts charge guests.
There are no registration requirements for income tax — you simply file and pay the tax due every year. However, the vast majority of tax jurisdictions require vacation rental operators to register for a tax permit or license before you start collecting short-term rental taxes from guests. In most cases, you can register online for free, although some jurisdictions do charge a fee.
How Often You File and Pay
Federal income taxes are generally due once a year — with the notorious filing deadline of April 15 (although some taxpayers may be required to pay estimated taxes each quarter).
However, deadlines for filing and payment of short-term rental taxes vary quite a bit according to the rules of the jurisdiction and the amount of taxes due. It’s common for short-term rental taxes to be filed and paid on a monthly basis, but you may be required to file quarterly or possibly even yearly, depending on the jurisdiction.
When you file income taxes, you may take tax deductions that can decrease your reported income and reduce the amount you owe in taxes. For short-term rental operators, such deductions can include operating expenses, amounts paid for insurance and property taxes, and more.
Since short-term rental taxes are paid by guests rather than hosts, there are no tax deductions for vacation rental operators. However, some jurisdictions may offer short-term rental operators a slight deduction on the amount of taxes owed if they pay early or on time.
Getting Tax Help
If you’re like most short-term rental operators, you probably have much more experience with income taxes than you do with short-term rental taxes. Not only that, but you can call on a variety of sources to help with income tax, ranging from professional tax preparers to tax-filing software.
Because vacation rental tax requirements are so local in nature, it can be more difficult for vacation rental operators to get expert help in complying with the specific short-term rental tax compliance requirements that apply to them.
Meanwhile, local tax authorities are paying increasing attention to vacation rentals and the tax revenues they can generate, and more jurisdictions are focusing on enforcement of short-term rental rules. This means there’s more motivation than ever before for vacation rental hosts to take lodging tax obligations seriously.
About Jennifer Sokolowsky
Jennifer Sokolowsky specializes in writing about tax and legal topics for Avalara, as well as writing other B2B, PR and promotional content.