Do I have to report STR income if I rent for fewer than 14 days a year?

No. Under the "Augusta Rule" (IRC Section 280A(g)), if you rent your home for fewer than 14 days in a year, the rental income is tax-free and you don't report it. But you also can't deduct rental expenses. This applies to your primary residence, not a dedicated investment property.

Can I deduct the cost of furnishing the property?

Yes. Furniture, appliances, linens, and equipment are depreciable personal property. With 100% bonus depreciation, they may be fully deductible in year one. Keep itemized receipts for everything you purchase.

What's the difference between a repair and an improvement?

Repairs restore the property to its original condition and are immediately deductible. Improvements add value, extend the useful life, or adapt the property to a new use, and must be capitalized and depreciated. Replacing a broken faucet is a repair. Replacing all the plumbing is an improvement. The line isn't always obvious; ask your CPA when in doubt.

Can I deduct losses if my STR is managed by a property manager?

Using a property manager doesn't automatically make your STR passive. You can still materially participate by making management decisions, reviewing financials, and approving major expenditures. But you need to meet one of the IRS material participation tests. Document your involvement carefully.

How do I handle the split between rental and personal use days?

Expenses that relate to the whole property (mortgage interest, property taxes, insurance, depreciation) are allocated between rental and personal use based on the ratio of rental days to total days used. Expenses that relate only to rental periods (cleaning between stays, supplies for guests) are fully deductible without allocation.

The STR Investor's Tax Playbook: Deductions, Depreciation, and What Most Owners Miss

Short-term rentals have a tax profile unlike any other real estate category. The rules are more favorable than long-term rentals in some ways, more complicated in others, and most owners don't take full advantage of either. This is a working overview of the deductions available to STR investors and the mistakes that leave money behind.

The deductions most owners take

These are the basics. If you're not taking all of them, start here.

Mortgage interest: Deductible on Schedule E for the rental portion of the property.
Property taxes: Deductible in proportion to rental use.
Insurance: Homeowner's, liability, and any short-term rental-specific coverage.
Platform fees: Airbnb, VRBO, and other OTA commissions are fully deductible.
Property management fees: If you use a manager, their fees are deductible.
Cleaning and maintenance: Turnover cleaning, landscaping, pool service, pest control.
Supplies: Toiletries, paper goods, coffee, linens, and anything you stock for guests.
Repairs: Fixing what's broken is immediately deductible. Improvements are capitalized and depreciated.
Utilities: If you pay utilities for the rental, they're deductible in proportion to rental use.
Advertising: Photography, listing fees, and any paid promotion.
Professional fees: CPA, attorney, and bookkeeping fees related to the rental.

The deductions most owners miss

These are where the real money is.

Depreciation. The IRS lets you deduct the cost of the building (not the land) over 27.5 years. On a $600,000 property where $100,000 is land, that's $18,182 per year in depreciation, every year, with no cash outlay. Many owners either don't take it or take it incorrectly. If you've been filing without depreciation, a CPA can fix this with a Form 3115.

Furniture and equipment. Everything you bought to furnish the property, from the couch to the coffee maker, is depreciable personal property. With 100% bonus depreciation (restored for property placed in service after January 19, 2025), it may be fully deductible in year one. Keep receipts for everything.

Travel to the property. If you travel to your STR for business purposes (inspections, repairs, meeting contractors), the travel is deductible. Keep a log of the purpose of each trip. Personal trips are not deductible.

Home office. If you manage your STR from a dedicated home office, a portion of your home expenses may be deductible. The space must be used regularly and exclusively for business.

Vehicle expenses. Trips to the hardware store, supply runs, and property visits are deductible. Track mileage or use the actual expense method.

Education and subscriptions. Books, courses, and subscriptions related to managing your STR business are deductible. This includes real estate investing courses, STR management software, and industry publications.

Cost segregation. A cost segregation study reclassifies components of the building into shorter depreciation lives, dramatically accelerating your deductions. On a $700,000 property, this can generate $150,000–$200,000 in additional first-year deductions. See our full guide on cost segregation for STRs.

The mixed-use rules

If you use the property personally as well as renting it, the tax treatment depends on how many days you use it.

The IRS uses a threshold of the greater of 14 days or 10% of rental days. If your personal use exceeds this threshold, the property is treated as a personal residence for tax purposes, and your deductions are limited. Losses cannot exceed rental income, and you can't use the STR passive loss rules.

If your personal use stays below the threshold, the property is treated as a rental, and you can deduct expenses in proportion to rental days. Losses may be usable depending on your participation and income level.

Many STR investors choose to keep personal use below the threshold to preserve the full deduction profile. If you want to use the property personally, plan the days carefully and document everything.

The Schedule E vs. Schedule C question

Most STR income is reported on Schedule E (Supplemental Income and Loss). But if you provide substantial services to guests, similar to a hotel (daily cleaning, meals, concierge), the income may be Schedule C self-employment income, subject to self-employment tax.

The line between Schedule E and Schedule C is not always clear. Most vacation rentals with standard amenities (cleaning between stays, not during) are Schedule E. If you're offering hotel-like services, talk to your CPA about the classification.

Tracking and documentation

The IRS can audit STR deductions, and the burden of proof is on you. Keep:

Receipts for every expense over $75
A rental calendar showing rental days vs. personal use days
A mileage log for vehicle deductions
Records of the business purpose for every trip to the property
Depreciation schedules from your CPA

Good bookkeeping software (QuickBooks, Wave, or a property-specific tool like Hostfully or Guesty) makes this manageable. Set it up in year one and maintain it consistently.

The passive loss rules and why they matter

This is the most consequential tax issue for STR investors, and it's covered in depth in our guide on Real Estate Professional Status and the STR Loophole. The short version: if your STR qualifies as a non-passive activity (average stay of 7 days or fewer, material participation), losses can offset your W-2 or business income. If it doesn't qualify, losses are passive and can only offset passive income. The difference can be worth tens of thousands of dollars per year.

Work with a specialist

STR tax rules sit at the intersection of real estate, passive activity, and small business tax law. A general CPA who doesn't specialize in real estate will often miss the STR-specific rules. Find an advisor with a real estate focus, ideally one who works with STR investors specifically. The fee is deductible, and the savings typically far exceed the cost.