Whether tourists visit Acadia National Park in Bar Harbor or experience the charm of a small seaside town like Portland, Maine is an idyllic destination for owning a vacation property.
Learn how to capitalize on optimal tax benefits while staying in compliance with federal and local laws.
What’s considered a short-term rental?
Short-term rentals typically refer to temporary lodging or vacation dwellings occupied for fewer than 28 days. All property owners must collect and remit a 9% lodging tax in Maine.
It’s essential to adhere to the Maine Revenue Services regulations for STRs by registering to collect sales tax on rentals.
When should I report the rental income for my short-term rental?
The United States tax year generally starts on January 1 and ends on December 31, with individual tax returns due on April 15 each year. Your rental income is taxable income.
Do I always need to report rental income?
Anyone leasing their short-term rental properties on Airbnb or VRBO for more than 14 days earns a taxable income and must report earnings.
Vacation property owners may be exempt from sales tax on their STR if their living quarters serve as primary residences or are rented for employment or educational purposes. Other exemptions are leasing a property for fewer than 15 days.
How do I report rental income for my short-term rentals?
When you earn a rental income from a property, you can offset some of that income by deducting certain expenses. These expenses span mortgage interest, real estate taxes, maintenance, utilities, and insurance. You may also qualify for depreciation deductions.
Use the Schedule E Form 1040 or the Form 1040-SR—the U.S. tax return for seniors 65 and older to report earnings.
Follow these steps, which break down the process for reporting rental income with a Schedule E 1040 Form.
Step 1: Gather the proper forms
Staying organized is essential if you want to streamline the reporting process. Prepare a list of itemized deductions to include on the 1040 Form.
Keep copies of your receipts for all expenses associated with your rental activities.
Step 2: Determine if the structure of your business is active or passive
Whether you are earning a passive income renting your investment property or are knee-deep in performing property management duties, you must report your rental income. Determining whether your business earnings are active or passive will help you formulate an itemized deduction list.
A passive income is earned through minimal work while leasing investment properties. Anyone routinely providing guest services is considered to be running a business.
Step 3: Reporting rental income with a Schedule E (Form 1040)
If you rent your vacation property through Airbnb, you need to submit a W-9 form to Airbnb. If you don’t, the company is legally obligated to withhold 28% of your rental income for taxes throughout the entire tax year. However, in most cases, your actual tax liability on rental income will be less than 28%.
Once you submit a W-9 form to Airbnb, report your earnings and deductible expenses on your 1040 Form.
Key tax deductions for short-term rentals
Homeowners can deduct expenses, including some depreciation deductions, mortgage interest rates, and other applicable rental expenses. Ideally, speaking to a tax professional will help you broadly identify and capitalize on all tax benefits. Here is a list of deductions you may qualify for if you earn a passive income or oversee all rental operations:
- Property taxes
- Real estate mortgage
- Travel expenses
- Rental expenses (cleaning, meals)
- Maintenance deductions
- Business expenses (property management fees)
Maine residents may receive a refund on property tax or rent payments through the Property Tax Fairness Credit program, even if they owe no income tax.
FAQ: Short-term rental property tax deductions in Maine
The tax rate on short-term rentals is 9%. This means that a sales tax of 9% is applied for each transaction. Some additional sales tax may apply in different cities.
Permits are required for vacation rentals. Stay updated with developing regulations or consult a tax professional to comply with new laws.
In rural parts of Maine, the Maine Land Use Planning Commission (LUPC) is considering new rules for STRs. Be aware of regional and city-wide regulations. Often, environmental issues and the housing market can influence STR terms on a residential property.
Yes, any extra income earned from renting your primary residence for 28 days or fewer is considered a taxable income. Property owners must collect and remit lodging taxes.
Our final thoughts
Leasing a short-term rental can be profitable, especially when you capitalize on tax deductions. If you’re unsure whether you’re ready to take on the responsibility of managing a long-term rental or if you prefer the flexibility of leasing for shorter periods, review our guide to learn what’s right for you.
