Ultimate Guide to Short-Term Rental Tax Deductions in 2025

Short-term rentals have exploded in popularity over the past decade, with platforms like Airbnb and VRBO making it easier than ever to monetize your property. But beyond the rental income itself, savvy property owners know that the real wealth-building potential lies in understanding and maximizing tax deductions.

In this comprehensive guide, we'll walk you through every tax deduction available to short-term rental owners in 2025, helping you keep more money in your pocket while staying fully compliant with IRS regulations.

Understanding Short-Term Rental Tax Classification

Before diving into deductions, it's crucial to understand how the IRS classifies your short-term rental property. The tax treatment depends on several factors:

The 14-Day Rule (Masters Exception)

If you rent your home for 14 days or fewer during the year, the IRS considers this "personal use," and you don't have to report the rental income. However, you also cannot deduct rental-related expenses.

This strategy works exceptionally well for:

• Homes near major events (Super Bowl, concerts, conventions)
• Vacation destinations during peak season
• Properties in cities hosting special events

Example: You own a home near Augusta National Golf Club and rent it for $5,000 per night during Masters week (7 days). That's $35,000 of tax-free income!

Rental Property Classification

If you rent for more than 14 days, your property may qualify as a rental property, opening the door to numerous deductions. The classification depends on:

1. Personal Use: You use it for personal purposes less than 14 days or 10% of rental days (whichever is greater)
2. Rental Activity: You rent it for a fair market rate

Top Tax Deductions for Short-Term Rentals

1. Depreciation: Your Largest Tax Benefit

Depreciation is the process of deducting the cost of your property over time. For residential rental properties, the IRS allows you to depreciate the building (not land) over 27.5 years.

Calculation Example:

• Property purchase price: $500,000
• Land value: $100,000
• Depreciable building value: $400,000
• Annual depreciation: $400,000 ÷ 27.5 = $14,545

That's a $14,545 annual deduction without spending a single additional dollar!

Advanced Strategy: Consider a cost segregation study to accelerate depreciation by reclassifying certain property components (appliances, flooring, fixtures) as 5, 7, or 15-year property instead of 27.5 years.

2. Mortgage Interest

You can deduct the interest portion of your mortgage payments as a rental expense. This typically represents your largest cash expense in the early years of property ownership.

Example:

• Monthly mortgage payment: $2,500
• Interest portion: $2,000
• Annual interest deduction: $24,000

3. Property Taxes

100% of property taxes paid on your rental property are deductible as a rental expense.

4. Insurance Premiums

Deduct all insurance premiums for your short-term rental:

• Homeowners insurance
• Liability insurance
• Umbrella policies
• Host protection insurance
• Flood insurance
• Earthquake insurance

5. Repairs and Maintenance

Any expense to keep your property in good working condition is immediately deductible:

• Fixing a leaky roof
• Repairing broken appliances
• Patching holes in walls
• HVAC maintenance
• Plumbing repairs
• Pest control

Important Distinction: Repairs are immediately deductible, while improvements (adding value or extending useful life) must be depreciated over time.

Repairs vs. Improvements:

• Repair: Fixing a broken window ($300 - immediate deduction)
• Improvement: Installing new energy-efficient windows throughout ($10,000 - depreciate over time)

6. Utilities

Deduct all utilities you pay for:

• Electricity
• Gas
• Water and sewer
• Trash collection
• Internet and cable TV
• Phone line for guest communications

7. Cleaning and Maintenance Services

Professional cleaning between guests is fully deductible. Many STR owners spend $75-150 per turnover.

Annual Example:

• Average cleaning fee: $100
• Bookings per year: 150
• Total cleaning deduction: $15,000

8. Property Management Fees

If you hire a property management company (typically 10-30% of rental income), these fees are fully deductible.

9. Platform Fees

Airbnb, VRBO, and Booking.com typically charge 3-15% per booking. These fees are deductible business expenses.

10. Supplies and Amenities

Deduct all supplies you provide for guests:

• Linens and towels
• Toiletries (shampoo, soap, toilet paper)
• Kitchen supplies (coffee, cooking oil, spices)
• Cleaning supplies
• Paper products
• Welcome baskets

11. Furniture and Equipment

You can deduct furniture and equipment through:

• Section 179 Expensing: Immediately deduct up to $1,160,000 (2025 limit) in qualifying property
• Bonus Depreciation: 60% first-year bonus depreciation in 2025 (phasing down)
• Regular Depreciation: Depreciate over 5-7 years

Items include:

• Beds, mattresses, couches
• TVs and electronics
• Appliances
• Outdoor furniture
• Decorative items

12. Marketing and Advertising

All costs to promote your rental are deductible:

• Professional photography
• Airbnb/VRBO listing fees
• Website hosting and design
• Social media advertising
• Print materials
• Signage

13. Professional Services

Deduct fees for:

• Accountants and tax preparers
• Lawyers (for lease agreements, compliance)
• Real estate agents (for property acquisition guidance)
• Consultants

14. Travel Expenses

If you travel to your rental property for business purposes, you can deduct:

• Mileage (67 cents per mile in 2025)
• Airfare
• Hotels
• Meals (50% deductible)
• Rental cars

Documentation is key: Keep a log of your business purpose for each trip.

15. Home Office Deduction

If you have a dedicated space in your primary residence where you manage your STR business, you may qualify for a home office deduction.

Calculation:

• Home office square footage: 150 sq ft
• Total home square footage: 2,000 sq ft
• Percentage: 7.5%
• Annual home expenses: $30,000
• Home office deduction: $2,250

The STR Loophole: Material Participation

Here's where short-term rentals offer a unique advantage over traditional long-term rentals. If you can qualify as a Real Estate Professional and demonstrate Material Participation, your rental losses can offset your ordinary income (W-2 wages).

Requirements:

1. Real Estate Professional Status:
   • Spend more than 750 hours per year in real estate activities
   • Spend more than 50% of your working time in real estate
2. Material Participation (Average Stay ≤ 7 Days):
   • Participate more than 500 hours per year, OR
   • Participate more than 100 hours and no one else participates more, OR
   • Meet one of the other material participation tests

The Power of This Strategy:

Traditional long-term rentals generate passive losses that can only offset passive income. But short-term rentals with average stays of 7 days or less are NOT automatically passive.

Example:

• W-2 income: $200,000
• STR rental loss (after depreciation): -$40,000
• Material participation: Yes
• Taxable income: $160,000
• Tax savings: ~$15,000 (depending on tax bracket)

Record-Keeping Best Practices

To maximize deductions and stay audit-proof:

1. Separate Bank Account: Use a dedicated account for all STR income and expenses
2. Credit Card: Have a separate credit card for rental expenses
3. Accounting Software: Use QuickBooks, FreshBooks, or specialized STR software
4. Receipts: Save all receipts digitally (take photos immediately)
5. Mileage Log: Use apps like MileIQ or Stride to track business miles
6. Time Tracking: Document hours spent on rental activities
7. Rental Calendar: Keep records of rental days vs. personal use days

Common Mistakes to Avoid

1. Mixing Personal and Business Expenses

Keep everything separate. Never pay rental expenses from your personal account or vice versa.

2. Not Tracking Personal Use

If you use the property personally, you must prorate expenses based on rental vs. personal days. The IRS is strict about this.

3. Forgetting to Depreciate

Some owners forget to claim depreciation, losing out on tens of thousands in deductions over time.

4. Improper Expense Classification

Make sure you understand the difference between repairs (immediate deduction) and improvements (must depreciate).

5. Missing the September 15 Deadline

If you want to perform a cost segregation study and file amended returns, you generally must do so by September 15 of the filing year.

Tax Planning Strategies for 2025

1. Cost Segregation Study

For properties worth $300,000+, a cost segregation study can front-load depreciation deductions, creating significant tax savings in the first few years.

2. 1031 Exchange

If you're selling one rental property to buy another, consider a 1031 exchange to defer capital gains taxes.

3. Opportunity Zone Investing

Investing in Qualified Opportunity Zones can provide significant tax benefits, including deferred and potentially reduced capital gains taxes.

4. Maximize Section 179

If you're purchasing furniture, equipment, or making improvements, take advantage of Section 179 expensing to deduct up to $1,160,000 immediately.

5. Spouse as Real Estate Professional

If you have a high W-2 income and your spouse can qualify as a real estate professional, your rental losses can offset your W-2 income.

Conclusion

Short-term rental properties offer some of the most powerful tax benefits in the tax code. By understanding and properly utilizing these deductions, you can significantly reduce your tax burden while building long-term wealth through real estate.

Key Takeaways:

• Depreciation is your largest tax benefit
• The 14-day rule offers tax-free income for occasional rentals
• Material participation can unlock active loss treatment
• Meticulous record-keeping is essential
• Work with a tax professional experienced in STR properties

Remember, tax laws are complex and change frequently. Always consult with a qualified tax professional who specializes in short-term rentals before making major tax decisions.

Ready to calculate your potential tax savings? Try our Short-Term Rental Simulator to see how these strategies could impact your specific situation.