New Jersey is a blend of natural beauty and a buzzing urban atmosphere. Tourists are increasingly booking more stays in New Jersey to take day trips to the Big Apple since New York tightened short-term rental (STR) regulations. The stricter reforms on New York’s STRs also increased demand for vacation homes on the beautiful coastlines of the Jersey Shore and in Jersey’s rural mountain cabins.

If you are new to operating a vacation rental property, follow this guide to learn how to get the most profitable returns with rental property tax deductions. 

What’s considered a short-term rental?

A short-term rental is any vacation rental in a residential property or apartment unit occupied by renters for 30 consecutive days or less. Regulations may vary from location to location, so it’s good to familiarize yourself with local STR laws.

For example, in Jersey City, owners must apply for a permit from the Division of Housing Preservation, which is required for all STRs of less than 28 consecutive nights. In Atlantic City, property owners must obtain a seasonal certificate of occupancy.

When should I report rental income on my short-term rental?

The 2024 tax filing season began on January 29. The Internal Revenue Service (IRS) will begin collecting and processing 2023 tax returns at the beginning of the year. The deadline to file your taxes is quickly approaching on April 15, 2024.

Do I always need to report rental income?

In most cases, you need to report your STR earnings. However, the duration at which you rent your STR determines whether you owe taxes.

Though rental earnings are taxable income, short-term rental hosts are exempt from reporting their rental income if tenants only occupied the rentals for 14 days or less annually. Platforms such as Airbnb and VRBO still report all earnings despite a 14-day rule. You can still report your extra income and categorize it as additional income, eligible for the 14-day exception.

How do I report rental income for my short-term rentals?

Track all your expenses throughout the rental process to effortlessly submit taxes. Being organized will also accelerate the refund process.

Depending on how you rent your vacation accommodation, you or the online platform you use must collect and pay state and local taxes to the IRS.

What if I host my short-term rental on a transient space marketplace?

Online platforms that are used to book short-term stays are also known as transient space marketplaces. Examples include Airbnb, VRBO, or Booking.com. These platforms book guest stays and handle payment, sometimes charging a fee.

If a guest books through one of these platforms, the platforms ensure the taxes are paid. But, if the guest books directly with the property owner, such as through their website, then the property owner has to handle the taxes themselves and report all earnings to the IRS.

In New Jersey, guests pay a Municipal Occupancy Tax currently set at 6.625%. This sales tax is for lodging considered a hotel or motel equipped with on-site services, including cleaning. If you host an Airbnb, the Occupancy Tax will vary from city to county.

Follow these steps to simplify the process of reporting rental income for your STR.

Step 1: Gather the right forms

Ensure you are keeping an organized record of all of the expenses for your rental, like repair and home supply receipts. Staying organized and collecting all of the documents you need will help when it’s time to file taxes on the residential property you are renting. 

Property owners renting out their property for no more than 30 consecutive days and more than 14 days annually should obtain a W-9 form if they use Airbnb for their short-term rental properties. This form is used to request information needed to file taxes, in addition to a Schedule E 1040 Form. 

There is no deadline to submit a W-9, but you need to submit the 1040 form by the April 15, 2024 deadline. 

Check out our guide on reporting rental income with a Schedule E 1040 Form. 

Step 2: Determine if the structure of your business is active or passive

In New Jersey, making money from renting out a property is usually considered passive income. This means you can do little work to keep the rental going. STR incomes are usually considered investments earning passive income.

The good news is you can deduct certain expenses related to earning that passive income, which may include repairs and maintenance.

When you actively work to maintain the rental property by doing things like regular upkeep, cleaning, and fixing things routinely, it’s considered active income. This type of income is often taxed at higher rates.

Step 3: Reporting rental income with a Schedule E (Form 1040)

Whether renting a room in your primary residence or an entire vacation home, you can use a 1040 Form to report the money you earn and the costs you paid to improve the rental and provide services.

Airbnb, HomeAway, and VRBO must withhold 28% of your rental income if you don’t provide them with a W-9 form.

Key tax deductions for short-term rentals

Some essential tax deductions for STRs in New Jersey may include any expense directly related to renting the property, including cleaning fees, maintenance, repairs, advertising, travel fees, insurance, mortgage interest rate, property taxes, and depreciation.

Talk to a tax professional or real estate broker to ensure you maximize your tax deductions.

FAQ: Rental property tax deductions in New Jersey