Washington state is where lush green landscapes meet lively music scenes, enticing travelers year-round. From the Emerald City’s evergreen forests to sprawling rocky shorelines, Washington State offers many vacation rental opportunities for travelers and investors alike.
Rental expenses vary depending on the location and amenities, making it essential for rental property owners to stay informed about short-term rental taxes and regulations governing platforms like Airbnb and VRBO.
Our guide will help rental property owners understand how to capitalize on deductible expenses, from property taxes to rental expenses.
What’s considered a short-term rental?
Hosting guests in your rental for less than 30 consecutive days is a short-term rental, encompassing various accommodations from homes to camping sites. Hosts must adhere to Washington State regulations by registering with the Department of Revenue.
When should I report my rental income for my short-term rental?
Every tax year begins on January 1 and concludes on December 31, with individual tax returns typically due by April 15. Rental income is taxable income if you lease your vacation rental property for longer than 14 days annually.
Do I always need to report rental income?
When someone pays to stay at your short-term rental properties for more than 14 days annually, those earnings are seen as taxable income to the Internal Revenue Service (IRS) and must be reported.
Exemptions will apply if the short-term rental operator leases the property for fewer than 14 days. Simultaneously, you cannot deduct expenses linked to STRs, yet certain expenses like mortgage interest and real estate taxes are deductible regardless of rental activity.
How do I report rental income for my short-term rentals?
The IRS advises using the Schedule E Form 1040 or the Form 1040-SR—tailored for seniors 65 and older to report earnings.
For a complete breakdown of the tax reporting process, review our guide on reporting rental income using the Schedule E 1040 Form.
Expedite the process of reporting your earnings and business expenses with these straightforward steps.
Step 1: Gather the proper forms
It’s essential to maintain a written record of all the time spent on repair and maintenance, as well as the costs associated with rental activity. Streamline the reporting process by preparing an itemized list of deductions to include on the 1040 Form. Your records will serve as protection against potential audits.
Step 2: Determine if the structure of your business is active or passive
Passive income means the property owner is engaging in minimal day-to-day involvement, usually when managing properties through online booking platforms. Compare this to a more hands-on approach, when rentals generate income with a significant effort from the short-term rental operator. Active income is when the owner has a higher level of involvement.
Step 3: Reporting rental income with a Schedule E (Form 1040)
When you opt to lease your vacation property via Airbnb, submit a W-9 form to Airbnb; otherwise, failure to do so will result in the company being legally bound to withhold 28% of your rental income for tax purposes throughout the fiscal year.
Key tax deductions for short-term rentals
For short-term rental hosts leasing their properties, various deductions, such as depreciation, mortgage interest, and deductible expenses, must be considered. Consulting with a tax professional can help you maximize these benefits. Potential deductions include property taxes, mortgage interest, travel expenses, rental expenses like cleaning and meals, maintenance costs, and rental business expenses such as property manager fees. Washington residents might also qualify for property tax or rent refunds through the property tax fairness credit, regardless of their income tax liability.
FAQ: Short-term rental property tax deductions in Washington
Washington’s retail sales tax is 6.5%. This tax also applies to transactions made through short-term rental platforms like Airbnb and VRBO, where short-term rental taxes may be applicable based on the rental property’s location.
In Washington state, short-term rental platforms must register with the Department of Revenue, inform operators of tax responsibilities, and educate them on safety requirements.
Additionally, short-term rental operators must maintain liability insurance coverage of at least one million dollars on vacation rentals or use platforms that offer equal or greater coverage for short-term rentals.
In Washington State, rental property owners must report their rental income, whether earned from their primary residence or rental unit, as long as they lease their property for longer than 14 days annually. When you report earnings, you can claim rental expenses and other deductions. Short-term rental property owners must obtain a business license.
Our final thoughts
Renting out a short-term rental can be a lucrative venture, particularly when you’re savvy about leveraging tax deductions. For those who are unsure whether they want to shoulder the duties of overseeing a long-term rental or leasing vacation rentals for briefer intervals, check out our guide to help you decide.
