Texas is a big state that spans endless prairies, rugged canyons, and the bustling cities of Dallas and Austin. The Lone Star State appeals to all types of travelers and is an ideal place to own a vacation rental.

This guide will reveal how to file taxes and maximize deductions for Texan property owners.

What’s considered a short-term rental?

Short-term rentals (STR) are any home or apartment unit rented for less than 30 consecutive days. They are governed by city ordinances and may be subject to licensing requirements and annual renewals by the Development Services Department’s Code Compliance division.

In Austin, property owners of STRs are required to get a license.

When should I report the rental income for my short-term rental?

Tax day in the United States arrives on April 15, 2024. Consulting with a tax professional is ideal if you are actively involved in managing the upkeep of your vacation rental.

In some places, Airbnb automatically collects and pays taxes for hosts. However, you may have to collect guest occupancy taxes, which necessitates meticulous record-keeping of receipts and dates. That way, when tax day looms, you’re poised to optimize your deductions.

Do I always need to report rental income on my short-term rental?

In many cases, the money you earn from your STR is considered a taxable rental income. Whether you pay taxes on your STR depends on the rental duration. 

The 14-day rule offers an exemption to those who rent their rental property for less than 14 days annually. Yet, homeowners using online platforms like Airbnb and VRBO should know that these platforms must disclose all earnings.

When you find yourself only renting your property for 14 days or less annually, add the vacation rental income you earn to your tax return as additional income, subtract it as an adjustment to income, and note that it qualifies for the 14-day exception.

If you rent your rental property for more than 14 days annually, you have to report taxes, but you may also be able to write off operating expenses. 

How are taxes collected if I host my short-term rental on Airbnb? 

Airbnb began collecting the state hotel occupancy tax from guests in Texas in 2017. The state transient tax is 6% of the total price of the Airbnb stay, including cleaning fees, but only if the guest stays 29 nights or less. The tax is already included in the total cost that the guest will pay.

Airbnb collects the transient tax (the 6%) plus your county’s Discretionary Surtax. The transient tax is made up of two parts: a 6% base rate and another part of the tax, depending on which county the short-term vacation rental is, called the county’s Discretionary Surtax.

Lodging taxes vary by city and may have county-specific rules. For instance, in Harris County, the lodging taxes are 7% in unincorporated areas–an area not governed by a municipal corporation. In Houston, the hotel occupancy tax is 9% in addition to the 6% base.

Though Airbnb collects and pays hotel occupancy taxes, hosts still need to file taxes. They will receive their payout minus the service fees Airbnb collected and paid.

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

Maintaining detailed records of your rental activities and preserving receipts can help you effortlessly execute the tax reporting process and get the most from tax deductions.

The following steps will guide you through the filing process from start to finish. 

Step 1: Gather the proper forms

If you’ve entrusted a property management company with overseeing your vacation rental, they should provide you with the necessary documentation to facilitate tax filings. If you manage the property, ensure all of your rental expenses and receipts are ready to file.

For a comprehensive breakdown of reporting rental income, check out A Guide to Reporting Rental Income: How to File a Schedule E.

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

If you earn a rental property income, it is typically considered a passive income. Most STR incomes are considered passive. When rental income is considered active, the property owner actively ensures the habitability of the rental unit by providing services such as routine maintenance, pest control, cleaning, and repairs. If the rental property owner performs these tasks, they are earning active income from the rental property.

Active income is usually taxed at higher rates. With passive income, you can deduct expenses related to earning a passive income, like repairs and maintenance.

Use this template to help track your rental expenses. 

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

The W-9 form collects information from Airbnb, such as your taxpayer identification number (usually your Social Security or employer identification number). Providing this information helps you avoid having Airbnb withhold 28% of your rental income for tax purposes. When you use a W-9, you can receive the full amount of your earnings from Airbnb. Report this income to the IRS on your tax return, specifically on a 1040 form.

Key tax deductions for short-term rentals

As a rental property owner managing vacation rental properties, you want to be aware of key tax deductions. From property taxes to repair and maintenance and other rental property expenses, understanding these deductible expenses can help you increase profitability.

Here are some rental property tax deductions your short-term vacation rentals may be eligible for: 

• Property taxes: When you rent out a room instead of an entire home for more than 14 days annually, you may be able to deduct some of your mortgage interest and property tax expenses based on the 14-day rule. You won’t be able to deduct 100% of costs if you rent out the entire home. 
• Depreciation deduction: Depreciation counts towards the loss of value of your home. You may be able to deduct a portion of the repair costs each tax year.

Maintenance and cleaning: If you are not using online platforms like Airbnb and VRBO, or if you are in a jurisdiction where these online platforms do not collect and pay service taxes, you may be able to write them off during the tax season.

FAQ: Rental property tax deductions in Texas