STR Tax Guide for Short-Term Rental Owners

1. Understanding Schedule E

As a short-term rental owner, you'll report your rental income and expenses on Schedule E (Supplemental Income and Loss) of your federal tax return. This is where the IRS wants to see your rental activity.

Pro Tip: If your average rental period is 7 days or less AND you provide substantial services (like daily cleaning), you may need to report on Schedule C instead. Consult a tax professional.

2. Common STR Tax Deductions

These are the expenses most STR owners can deduct. The key is having documentation to prove each expense.

Operating Expenses

• Platform fees (Airbnb, VRBO)
• Cleaning services
• Lawn care & snow removal
• Pest control
• Security monitoring
• Smart lock subscriptions
• Channel manager software
• Accounting software

Property Costs

• Mortgage interest
• Property taxes
• HOA fees
• Property insurance
• Umbrella insurance
• STR-specific insurance
• Utilities (if you pay)
• Internet & cable

Supplies & Consumables

• Toiletries & soap
• Coffee, tea, snacks
• Paper products
• Cleaning supplies
• Light bulbs
• Batteries
• Welcome gifts
• Guest guidebooks

Professional Services

• Property management fees
• Co-host commissions
• Accounting/bookkeeping
• Legal fees
• Photography
• Interior design consulting
• Permit & license fees
• Inspection fees

Important: If you use the property personally, you must prorate expenses based on rental days vs. personal use days. Only the rental portion is deductible.

3. Depreciation Explained

Depreciation is one of the most powerful tax benefits for STR owners. It allows you to deduct the "wear and tear" on your property and assets over time—even though you're not actually spending money each year.

Asset Type	Recovery Period	Examples
Residential Building	27.5 years	The structure itself (not land)
Land Improvements	15 years	Landscaping, driveways, fences
Appliances	5 years	Refrigerator, washer, dryer, dishwasher
Furniture	5-7 years	Beds, sofas, tables, chairs
Electronics	5 years	TVs, smart home devices, computers
Carpets & Flooring	5 years	Carpet, rugs, vinyl flooring

Cost Segregation Study

For properties worth $500K+, consider a cost segregation study. This breaks down your property into components that can be depreciated faster (5, 7, or 15 years instead of 27.5), accelerating your tax benefits. The study typically costs $3,000-$10,000 but can save significantly more.

4. Repairs vs. Improvements

This distinction matters for taxes: repairs are fully deductible in the year paid, while improvements must be depreciated over time.

Repairs (Deduct Immediately)

Keeps property in normal operating condition. Fixes something broken.

✓ Fixing a leaky faucet
✓ Replacing broken window pane
✓ Patching drywall holes
✓ Repairing HVAC system
✓ Fixing appliance motors
✓ Repainting (same color)
✓ Replacing door handles

Improvements (Depreciate)

Adds value, prolongs life, or adapts property to new use.

→ New roof
→ Kitchen remodel
→ Adding a bathroom
→ New HVAC system
→ New appliances
→ Upgrading electrical
→ Adding a deck

The IRS "BAR" Test: An expense is an improvement if it results in a Betterment, Adaptation, or Restoration. When in doubt, consult your CPA.

5. Record-Keeping Best Practices

Good records are your defense in an audit and the key to maximizing deductions. Here's what to keep:

For Every Purchase

• Receipt or invoice with date and amount
• Description of what was purchased
• Which property it's for (if multiple)
• Category (repair, supply, improvement, etc.)
• Payment method used

For Property & Assets

• Purchase documents (closing statement)
• Photos of property condition
• Inventory of furnishings with values
• Appliance receipts and warranty info
• Improvement records with before/after photos

For Rental Activity

• Booking records (export from Airbnb/VRBO)
• Personal use log (dates you stayed)
• Mileage log (if you drive to property)
• Guest communications (for damage claims)

How Keen Owner Helps

Keen Owner automatically organizes your purchases by tax category, tracks warranties and maintenance, and stores photos of every room and item. When tax time comes, export everything your CPA needs in one click.

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6. Common Mistakes to Avoid

Missing Depreciation Deductions

Many STR owners forget to depreciate furniture, appliances, and improvements. This can mean thousands in missed deductions every year.

Not Separating Land from Building

Land cannot be depreciated—only the building. If you don't allocate properly, you may be over- or under-depreciating.

Mixing Personal and Rental Use

If you use the property yourself, you must track personal use days and prorate expenses accordingly. Keep a log.

Poor Documentation

No receipt = no deduction in an audit. Keep digital copies of everything. The IRS requires records for 3-7 years.

Treating All Expenses as Repairs

Calling a new roof a "repair" might seem like a good idea for immediate deduction, but it's an improvement. Getting caught means penalties and interest.

Disclaimer: This guide is for informational purposes only and does not constitute tax, legal, or financial advice. Tax laws change frequently and vary by jurisdiction. Always consult with a qualified tax professional or CPA for advice specific to your situation.

The Complete STR Tax Guide