Tax101: What’s Deductible for a Short-Term Rental

Fixing a leaking faucet and putting on a new roof are both work on your rental. You deduct the faucet this year. You usually recover the roof over many years. That line decides what your tax preparer does with some of your biggest receipts.

This is episode 2 of Tax101, our weekly series that breaks down short-term rental (STR) taxes 1 topic at a time. In episode 1, we covered which form your rental income goes on. Now we cover what comes off it. A deduction is a cost the IRS lets you subtract from your rental income, so you pay tax on the profit and not the total.

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The Test Every Cost Has to Pass

The IRS asks whether a cost is ordinary and necessary for renting your property. Ordinary means it’s common for a rental. Necessary means it helps you run the rental. The everyday costs of running a rental pass that test. The harder questions come after it: When can you deduct the cost, and how much of it?

What You Can Deduct

The IRS’s list of common rental expenses covers advertising, auto and travel, cleaning and maintenance, commissions, depreciation, insurance, interest, legal and professional fees, local transportation, management fees, mortgage interest, points, rental payments, repairs, taxes, and utilities.

For a host, that covers turnover cleaning, lawn care, listing photos, insurance, the mortgage interest, and your property tax bill. Tax return preparation fees count too, for the part of your return that covers your rental. You generally deduct each cost in the year you pay it. Once the place is available for rent, your costs to manage and maintain it count even before your first guest books.

The IRS list doesn’t name some of what you buy, including platform fees, software, smart locks, and guest supplies. Your preparer decides which category fits each item, or if its cost has to be spread over several years. Ask how they handled yours.

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Repair or Improvement

A repair keeps your property in working order. An improvement makes it better, restores it, or changes what it’s used for, and you capitalize it. That means you add its cost to what you paid for the property and recover it through depreciation, the yearly deduction that spreads a cost over time. We cover depreciation in a later episode. IRS safe harbors for routine maintenance and for small taxpayers can let you deduct some of these costs, so ask your preparer before you assume.

The IRS puts a new roof, new flooring, a kitchen remodel, a fence, a new heating system, and a new water heater on its improvement list. Patching a leak or fixing a broken faucet is a repair. The IRS also says to keep repair costs and improvement costs separate, because you need the improvement numbers when you depreciate or sell. Keep 2 folders from day one.

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The $2,500 Rule

A small purchase can skip the spreading. The IRS calls this the de minimis safe harbor: You can deduct items of $2,500 or less per invoice or per item in the year you buy them. You have to elect it, which means you attach a short statement to a return you file on time every year, and you have to deduct those items the same way in your own books. Without the election, your preparer has to decide purchase by purchase whether to deduct it or capitalize it.

The limit applies to each item. A $3,100 refrigerator is over the line, so the safe harbor doesn’t cover it, and your preparer handles it under the regular depreciation rules.

You depreciate furniture and appliances in a rental over 5 years, and bonus depreciation can speed that up. We cover that in a later episode. For now, know that the $2,500 election is the simple route for small purchases.

What You Can’t Deduct

• Mortgage principal. The interest is deductible. The part that pays down the loan isn’t.
• Land. You can’t deduct or depreciate it.
• Lost income. You can deduct the cost of maintaining a vacant rental, but not the rent you didn’t earn.
• Your commute to the property. Driving between home and your rental generally counts as commuting. A trip mainly to manage or maintain the property can be deductible, but a trip mainly to improve it can’t.
• Insurance for future years. If you pay more than 1 year of premiums at once, you deduct only the part that covers the current year.

If you do deduct driving, the IRS standard mileage rate for 2026 is 72.5 cents a mile through June 30 and 76 cents from July 1. Keep a log with the date, the miles, and the reason for each trip.

The Personal-Use Trap

If you stay in your own rental, the IRS counts those days against you. The IRS limits your deductions when your personal days are more than the greater of 14 days or 10% of the days you rent it to others at a fair price. Days a family member uses it count, and so do days you rent it below a fair price.

Take a cabin you rent for 120 nights and stay in for 15. Ten percent of 120 is 12, so the greater number is 14. Your 15 days pass 14, and the IRS treats the cabin as a home.

A separate rule covers a rental you use as a home and rent fewer than 15 days. You report no rental income, and you deduct no rental expenses.

What to Ask Your Tax Preparer

Your preparer sees your whole return. These 5 questions show you how they treated your rental:

• Which of my costs did you treat as repairs, and which as improvements? The answer tells you what you deducted now and what you’re recovering over time.
• Did you use the $2,500 election on my return, and should I? It’s an annual choice, and it changes how your preparer treats small purchases.
• How did you classify things the IRS list doesn’t name? That includes platform fees, software, smart locks, and guest supplies.
• How many personal-use days did you count? Compare it with the 14-day and 10% test.
• What records do you need from me? Keep receipts, separate your repair and improvement costs, and log your mileage. For a deeper look at what hosts spend, see The Real Costs of Running an Airbnb That No One Talks About.

Next in Tax101: Do You Need an LLC?

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