Short-term rentals like Airbnb and VRBO have boomed in recent years – and many of our clients are jumping on that bandwagon. As a real estate agent, you’re not expected to be a tax guru, but having a handle on Airbnb and taxes helps you steer clients in the right direction. Let’s break down the key points (so you can keep your clients out of IRS trouble!).
The 14-Day Rule Still Applies
First, remind clients that the same 14-day rule for vacation homes applies to Airbnb rentals. If they rent out a room or their entire house for 14 or fewer days in a year, that income is generally tax-free federally.
Good news for the occasional host! But the moment they go over 14 days, all rental income for the year becomes taxable income that must be reported.
There’s no sliding scale – it’s basically a switch. Many folks don’t realize this and assume “oh, it’s just a little side money.” As their agent, casually dropping this fact (“Hey, more than two weeks on Airbnb and the IRS considers you a landlord”) can save them from a nasty surprise later.
Expect a 1099-K
In the past, hosts could fly under the radar if they had only modest earnings. Not anymore. Nowadays, companies like Airbnb and VRBO are required to issue a Form 1099-K for for rental income processed.
According to the IRS, third-party settlement organizations, like Airbnb, will be required to report transactions when the amount of total transaction payments exceeds $5,000 in 2024 and $2,500 in 2025. For calendar-year 2026 and later years, the Form 1099-K threshold will be transaction payments exceeding $600.
That means if your client rents out even a few weekends and makes over the threshold for that year, the IRS will get a report of that income. There’s effectively no “secret” rental income – it’s all trackable.
So the advice is clear: report the income, even if it feels small. Undeclared income that the IRS knows about (via a 1099-K) is a recipe for letters, audits, or worse. The good news is if they’re reporting the income, they can also deduct legitimate expenses (cleaning fees, host service fees, supplies, etc.) to reduce taxable profit.
But they must keep records and be honest. As part of continuing education for real estate agents, we often emphasize extreme clarity – it’s much easier to do things right the first time than to clean up a tax mess later.
Local Occupancy Taxes & Regulations
Federal income tax isn’t the only concern. Occupancy taxes (also known as lodging or hotel taxes) may apply to short-term rentals in many cities and counties. For example, a city might impose a 10% room tax that guests owe for stays under 30 days (lslcpas.com).
Typically, the guest pays this tax, but the host is responsible for collecting and remitting it to the local government (lslcpas.com). Platforms like Airbnb often help by collecting these taxes in areas where they have agreements, but not everywhere. Your client should check their city’s requirements. Nothing sours the fun of rental income like a letter from City Hall about unpaid hotel taxes.
A quick heads-up from you (“Have you looked into local occupancy taxes?”) might prompt them to register or at least inquire with local authorities (avalara.com). It’s part of being a knowledgeable agent – you’re showing you understand the whole picture of renting, not just handing them the keys.
Other Considerations: Insurance and Legal
While our focus is taxes, it’s worth mentioning to clients that if they Airbnb their home, they should inform their insurance and possibly adjust their policy. Also, many HOAs or city zoning laws have rules about short-term rentals.
From a tax perspective, though, another tip: if they provide substantial services (like daily cleaning, breakfast, etc.), the IRS might view the activity not as a passive rental but as an active business (think along the lines of a B&B). That could subject the income to self-employment tax or different forms.
This is more nuanced, but if you sense a client is effectively running a mini-hotel, encourage them to get tax advice on whether it’s a Schedule E rental or a Schedule C business.
Bottom Line
Real estate CE courses now often include segments on short-term rentals because it’s become so common. You, as the agent, can be a valuable resource by sharing key pointers. Remind clients: keep it under 14 days for an easy, tax-free perk, but beyond that, play by the rules – report your income, anticipate a 1099-K, set aside money for taxes, and don’t forget state/local obligations. This friendly advice will help your clients enjoy their Airbnb income and sleep soundly at night, knowing they won’t get in trouble with the IRS or local tax authorities.
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