Six Tax Tips for Oregon Short-term Rental Owners
1. Keep records, keep records, keep records
For most people, their short-term rental is a side project. It’s a way to make a little extra money. The IRS, however, sees it as a business and you should be treating it like one. Keep records of who stayed and for how long, as well as payouts and expenses and you’ll save yourself a big headache during tax season.
2. Know the ‘Masters Exemption’
If a little extra cash sounds better than a full-fledged business, you should know about the Masters Exemption. This is also called the 14-day Rule because all the income from your short-term rental goes tax-free into your bank account if:
- You rent the house for 14 days a year or less.
- You live in the house for more than 14 days a year, or at least 10% of the time you rent it to others.
Even if you qualify for the Masters Exemption, at least keep records of who stayed and for how long. You can’t deduct expenses, but you may have to prove that you only rented for 14 days. Also keep in mind that the Masters Exemption applies only to income taxes. Your short-term rental is still subject to Oregon’s Transient Lodging Tax.
3. Research your Transient Lodging Tax
In California it’s the Transient Occupancy Tax and in Washington it’s the Hotel-Motel Tax. Here in Oregon we call it the Transient Lodging Tax and it applies anywhere a guest stays less than 30 consecutive days. In Portland, it breaks down like this:
|Transient Lodging Tax|
|City of Portland||6%|
|State of Oregon||1.8%|
In Portland, several platforms, including Airbnb, FlipKey, and TripAdvisor, collect and remits the Transient Lodging Tax on your behalf. That’s not necessarily true for the greater metro area or the rest of the state, so check your local regulations to learn more.
4. Fill out IRS Form W-9
If you’ve ever freelanced, you’ll remember Form W-9. The company you list your short-term rental with will probably ask for one. Don’t wait to fill it out and send it in. Without it, companies like Airbnb and HomeAway will withhold 28% of your payouts. That’s probably more than you’ll end up owing, but those withholdings have to be remitted to the IRS. You’ll get some of it back in the end, but there’s no reason to let someone else hold onto your money all year long.
5. Don’t forget to deduct ‘Guest Service Fees’
If you crossed the 14-day threshold, you need to pay taxes on your short-term rental business. The upside is: you can start deducting expenses. Most hosts remember all things ordinary and necessary: cleaning fees, new towels, and pillow mints. But did you know you can deduct a platform’s commission? Each company seems to have its own name for it, but it’s usually something like the ‘Guest Service Fee,’ or a ‘Host Fee.’ You’ll find it on the receipt once a reservation has been completed. Whatever it’s called, it’s part of the cost of doing business and you can deduct that amount on your taxes.
6. Determine the tax treatment of the rental income
If you don’t qualify for the Masters Exemption, most rental activities are reported on Schedule E. However, there are circumstances in which it instead goes on Schedule C and may be subject to self-employment tax. This is determined by multiple factors, including the average amount of time a guest stays in your property and your level of involvement. We can help you make this determination, and perhaps identify planning opportunities for the most beneficial tax treatment.
|Schedule C||Schedule E|
|Income is active||Income is passive|
|Subject to self-employment tax||No self-employment tax|
|Can deduct net losses against other sources of income||Can’t deduct net losses against other sources of income|
These six tips should make tax season a little smoother for short-term rental owners. If you still have questions – ‘What else can I deduct?’, ‘What if I didn’t keep records?,’ or ‘I got a letter from the IRS, what do I do?’ – don’t sweat it. You can contact our team today.
Delap LLP is one of Portland’s largest local tax, assurance, wealth advisory, and information security consulting firms, located in Lake Oswego, Oregon.