Short-term rental income is taxable, but vacation rental tax deductions can significantly reduce the net tax you owe. Houston-area STR owners who understand which expenses qualify can legally keep thousands of dollars more per year — and professional co-hosting often makes those deductions easier to document and maximize.
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Why Vacation Rental Taxes Work Differently Than Long-Term Rental Taxes
The IRS treats vacation rental properties differently from long-term rentals, and the rules hinge on one critical number: the average guest stay.
If the average rental period for your property during the year is seven days or fewer, the IRS classifies your property as a short-term rental. In that case, the rental income is typically treated as active income (similar to self-employment income), and the deductions available to you differ from those on a traditional long-term rental property.
If the average rental period exceeds seven days, the property is treated more like a traditional rental for tax purposes, and passive activity rules may apply.
For most Airbnb and VRBO properties in the Houston area (Lake Conroe, The Woodlands, Conroe, Cypress), where guests typically book two to five night stays, the short-term designation almost always applies.
This guide covers deductions that apply to most STR owners. Tax situations vary, and you should confirm specifics with a licensed CPA or tax professional familiar with short-term rental rules.
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Which Vacation Rental Expenses Are Tax Deductible?
The IRS allows STR owners to deduct ordinary and necessary expenses related to managing and maintaining the rental property. Here is a breakdown of the most common deductible categories.
Platform fees and booking commissions. Airbnb and VRBO charge hosts a service fee on each reservation, typically 3 percent for hosts using split fees. These fees are fully deductible as a cost of doing business.
Property management and co-hosting fees. If you use a professional co-hosting service like Breezy Vacation Rentals, the management fee you pay is a fully deductible business expense. This is one of the larger deductions for professionally managed properties.
Cleaning and turnover costs. Every cleaning fee you pay (whether directly to a cleaner or through the platform’s cleaning service) is deductible. Keep receipts from each service.
Supplies and consumables. Items you purchase and leave for guests — toiletries, paper towels, coffee, trash bags, laundry supplies — are deductible in the year you purchase them. This applies to restocking runs as well as initial setup.
Repairs and maintenance. Costs to fix a broken appliance, repair a leaking faucet, replace a damaged lock, or address any maintenance issue at the rental property are deductible. The IRS distinguishes between repairs (deductible in the current year) and improvements (which must be depreciated over time).
Utilities. If you pay utilities at the rental property (electricity, gas, water, internet, trash removal), those costs are deductible. If the property is also your primary residence part of the year, you can only deduct the utility costs for the rental portion.
Insurance premiums. Premiums for your homeowners policy (or any short-term rental specific insurance you carry on the property) are deductible.
Advertising and marketing expenses. Paid promotions on Airbnb, professional photography, website hosting fees, or any direct marketing you do for the property are deductible.
Professional services. CPA fees, legal fees related to the rental, and property management consulting costs are deductible.
HOA dues. If your rental property is in a community with an HOA and you pay HOA dues, those dues are deductible as a rental expense.
Mortgage interest. If the property is financed, the mortgage interest (not the principal) is deductible. This is often one of the largest single deductions for property owners carrying a loan.
Property taxes. State and local property taxes paid on the rental property are deductible as a rental expense (not subject to the $10,000 SALT cap that applies to personal deductions for primary residences used as STRs).
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Depreciation: Your Largest Vacation Rental Tax Deduction
Depreciation is often the most valuable and most underutilized vacation rental tax deduction available to property owners. It is also the most misunderstood.
What is depreciation? The IRS allows property owners to deduct a portion of the cost of a rental property each year to account for wear and tear. You do not need to spend any money to take the deduction — it is a “paper” expense that reduces your taxable income annually.
How it works for STRs. Residential rental properties are depreciated over 27.5 years using the straight-line method. If you purchased a Lake Conroe vacation rental for $350,000 and the land is worth $75,000, your depreciable basis is $275,000. Dividing by 27.5 years produces an annual depreciation deduction of approximately $10,000 per year.
Accelerated depreciation (cost segregation). For higher-value properties, a cost segregation study performed by an engineer can identify components of the property (appliances, carpeting, landscaping, roofing) that can be depreciated over shorter lives (5, 7, or 15 years) rather than 27.5 years. This front-loads larger deductions into the early years of ownership. According to the American Society of Cost Segregation Professionals, cost segregation studies are typically cost-effective for properties valued at $250,000 and above.
Bonus depreciation. For certain property components identified in a cost segregation study, bonus depreciation may allow you to deduct a larger percentage in the first year of ownership. The rules around bonus depreciation have changed in recent tax legislation, so consult your CPA for the current percentages.
Recapture at sale. Depreciation that you deduct during ownership is “recaptured” when you sell the property and taxed at a maximum rate of 25 percent for real property. This is important to understand, but for most owners who are not planning to sell soon, the current-year tax savings from depreciation far outweigh future recapture.
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The Mixed-Use Rule: When You Also Use the Property Personally
Many Houston-area vacation rental owners also use their property personally — staying a few weeks per year at their Lake Conroe cabin or weekend getaway home. The IRS has specific rules about how personal use affects your deductions.
The 14-day rule. If you use the property for personal purposes for more than 14 days OR more than 10 percent of the days the property was rented at fair market value (whichever is greater), the IRS classifies the property as a “residence” rather than a pure rental. In that case, your rental expenses must be allocated between rental use and personal use, and you cannot deduct a rental loss that exceeds rental income.
Deductions are still available. Even if the property is classified as a residence under the 14-day rule, you can still deduct the proportional share of mortgage interest, property taxes, and operating expenses allocated to the rental days. You just cannot use those deductions to create or increase a rental loss.
The pure rental exception. If you rent the property for fewer than 15 days per year total, rental income is actually tax-free (the “Augusta Rule”), but you cannot deduct any rental expenses either. This rarely applies to actively managed STRs.
For properties where owners want maximum deductions, limiting personal use to fewer than 14 days per year (or zero) keeps the property in pure rental status and removes the allocation requirement.
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How Professional Management Affects Your Deductions
Using a professional co-hosting service like Breezy Vacation Rentals has direct tax implications for Houston-area STR owners.
Management fees are deductible. The fee you pay to a co-host or property manager is a deductible operating expense. For most managed properties, this ranges from 15 to 25 percent of gross rental revenue. On a property generating $40,000 per year in gross revenue, that is $6,000 to $10,000 in deductible fees.
Better record keeping. Professional managers provide itemized monthly statements showing all income and expenses. This documentation makes tax preparation significantly simpler and reduces the risk of missing a deduction. Your CPA can work directly from the manager’s year-end report.
Higher occupancy supports larger deductions. Better management typically drives higher occupancy. Higher rental occupancy means more days classified as rental days (not personal use), which supports larger deductions and avoids the personal use allocation problem.
Cleaning and turnover records. Professional co-hosts maintain records of every cleaning, every supply order, and every maintenance visit. These records are essential if you are ever audited and need to substantiate your deductions.
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Common Vacation Rental Tax Deduction Mistakes to Avoid
Deducting personal use expenses. If you used the property personally for some portion of the year, you cannot deduct the expenses allocated to those personal-use days. Trying to deduct 100 percent of annual expenses when you used the property 30 days personally is a common audit trigger.
Missing the startup year. The year you first place a property into rental service, your deductions begin on the date you list it (not the date you purchased it). Make sure your CPA starts your depreciation schedule from the correct date.
Not tracking improvements separately. Painting a room is a repair (deductible now). Replacing all the windows is an improvement (depreciated over time). Many owners incorrectly lump improvements into repair deductions, which creates issues if audited.
Forgetting setup costs. Furniture, appliances, and decor you purchased specifically for the rental property can be depreciated (or expensed under Section 179) as business property. These are often significant for new STR owners.
Not working with a CPA who knows STRs. General tax preparers are not always familiar with short-term rental classification rules, the passive activity rules that apply when average rental periods exceed seven days, or cost segregation strategies. A CPA with STR experience will find deductions a general preparer might miss.
The IRS can audit returns up to three years after filing (or six years if income was underreported by more than 25%). Keeping organized records of every expense from day one protects every deduction you have earned. A professional co-host’s monthly statements are an excellent starting point.
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Summary: Key Vacation Rental Tax Deductions by Category
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FAQ: Vacation Rental Tax Deductions
What vacation rental expenses are tax deductible?
Vacation rental tax deductions include operating expenses (cleaning, supplies, utilities, platform fees), management fees, repairs, insurance, property taxes, mortgage interest, and depreciation. Improvements are depreciated rather than fully deducted in the year incurred.
Can I deduct my entire mortgage payment on a vacation rental?
No. Only the interest portion of the mortgage payment is deductible, not the principal. Interest is deductible as a rental expense. Principal repayment is not an expense — it is equity building.
How does the 14-day personal use rule affect my deductions?
If you use the rental property personally for more than 14 days per year (or more than 10 percent of the days rented), the IRS classifies it as a residence and requires you to allocate expenses between rental and personal use. You lose the ability to claim a rental loss beyond rental income. Keeping personal use below 14 days maintains full rental status.
Is property depreciation required, or can I skip it?
You are entitled to take depreciation, and technically the IRS assumes you have taken it when you sell (this is called “depreciation allowed or allowable”). Skipping depreciation does not save you from recapture tax at sale and costs you the deduction in the meantime. Depreciation should be taken every year.
Can I deduct the cost of furnishing my vacation rental?
Yes. Furniture, appliances, mattresses, kitchen equipment, and other personal property purchased for the rental can be depreciated (or expensed under Section 179 for faster deduction). These costs are often significant for new STR owners starting from scratch.
Does professional management increase or decrease my tax deductions?
Management fees are a deductible expense, so they do not reduce your deductible expenses — they become one of them. Additionally, professional managers tend to drive higher occupancy, which supports a larger rental-use allocation and better deductions overall. The management fee is essentially a tax-deductible cost of earning more rental income.
Do I need a CPA for my vacation rental taxes?
While it is not legally required, working with a CPA who understands short-term rental rules is strongly recommended. STR tax rules differ from long-term rental rules in important ways (active vs. passive income classification, personal use rules, cost segregation opportunities) that a general tax preparer may not navigate correctly. The tax savings from professional guidance typically outweigh the CPA fee.
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Ready to Earn More From Your Property?
Ready to earn more from your property? Breezy Vacation Rentals handles everything — bookings, guest relations, maintenance, and dynamic pricing. Our co-hosting services maximize your income while you relax. Learn how much you could earn. Visit breezyvacationhomes.com or call (936) 228-9273 to get started with a free consultation.
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*Breezy Vacation Rentals provides professional property management for vacation rental owners across the greater Houston area, including Lake Conroe, The Woodlands, Conroe, Spring, and Cypress. This article is for general informational purposes and does not constitute tax or legal advice. Consult a licensed CPA or tax professional for guidance specific to your property and situation.*
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