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Short-term home rentals could provide tax-free income

March 9, 2024
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(Photo by Kindel Media)

Spring break is here. In the Austin, Texas, area that means South By Southwest. And the Austin Rodeo.

Plus, in less than a month, millions will experience the last major solar eclipse for 20 years to cross North America, including some prime viewing here in parts of Texas. Yes, the Lone Star State’s capital city is in the path.

And all this means, in addition to worse traffic, that a lot of property owners will be making some big, and tax-free, bucks. They are or soon will be making their homes available as short-term rentals.

Tax benefit of very short-term home rental: As I’ve discussed before here on the ol’ blog, when you rent your residence (or vacation home) for 14 or fewer days in a year, those real estate transactions are tax-free.

This is a common activity in areas that are hosts to regular special events, like the aforementioned SXSW, as well as the NFL Super Bowl and March Madness college basketball playoff games.

Of course, any time you’re dealing with special tax situations, you need to be careful. That’s especially true when it involves real estate. So if you’re looking to make some tax-free bucks on a short-term lease of your home, you should consult your tax advisor (or get one) beforehand to make sure you don’t screw things up and end up costing yourself unexpected tax trouble.

In preparation for this tax-free rental move, this weekend’s Saturday Shout Outs go to the following articles that discuss these property moves.

CPA Mark Kohler explores How Short-Term Rentals are Taxed as his Main Street Tax Pro site.

Jennifer Larson and Christopher Davis, both CPAs, examine 4 short-term rental tax issues to consider for Sol Schwartz & Associates in San Antonio.

Eric McLimore and Eric Mann, partners at the Chicago law firm Neal, Gerber & Eisenberg, offer advice on Navigating IRS’s Guidance on Short-Term Rental Taxes via Bloomberg Tax.

For property owners who are considering going beyond the 14-day tax-free rent limit, check out How Do I Use Short Term Rentals to Reduce Taxes On My W-2 Income? by Thomas Castelli for Hall CPC PLLC.

And going straight to the source, check out this Internal Revenue Service material dealing with taxes and property rentals: Tax Topic no. 415, Renting residential and vacation property and IRS Publication 527, Residential Rental Property (Including Rental of Vacation Homes).

Don’t forget state/local regs and taxes: You’ll also need to be aware of local taxes that could affect your short-term residential rental. States and cites frequently tweak these laws.

Washington State, for example, is looking to tack a 10 percent tax on short-term rentals. Colorado legislators are exploring a property tax hike for that state’s short-term rental properties. And a Maine lawmaker sees a short-term rental tax as a way to pay for affordable housing.

Avalara offers an online tool where you can look up the local lodging tax rate for your vacation rental property. Below is what the hubby and I would owe if we decide to let our home for a couple of weeks.

Avalare ATX residential rental tax rateYou also can scroll down after getting your rate to check out the tax compliance software company’s MyLodgeTax overview of each state’s vacation rental tax requirements.

For this week, however, the hubby and I are just going to hunker down in our suburb and steer clear of downtown Austin’s added event traffic.

You also might find these items of interest:

 

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TO WRAP UP 2026

It’s over! With October’s extended filing deadline behind us, it is now time to focus on year-end moves to reduce your 2026 tax bill. 

You’ll find ways to do just that on the Tax Tips page (see the More Tax Posts drop-down menu at the top of the blog), as well as the separate tax tip pages for each month, notably October through December. If you’re on the Tax Tips page, you’ll find a monthly list at the end of this column. If you’re on another blog page, you can head straight to the October tips; at the bottom of that tips page you’ll find links to all the other 11 months’ collections of tax advice.

Not to spoil what you’ll find in that tax advice, but it does cover such things as tax deductions for charitable donations, investment moves that could reduce tax due, and ways to max out your tax-favored retirement savings. 

Finally, as the year winds down, things get hectic. There are lots of other things to occupy our time, like the much more fun upcoming holidays. But don’t lose sight of taxes, since timing is key. To be of use, most tax moves must be made by the end of the tax year. That’s Thursday, Dec. 31, which also is the last business day of the year. 

So that you don’t miss that final tax year deadline, also keep an eye on the countdown clock below. It will keep you on top of just how much time is left to make important, tax-saving moves. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

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