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5 Ways to Get the Most From Your Short-Term Rental Investment

The short-term rental marketplace is competitive. Use these five strategies to stand out and boost your profits.

[Updated: Feb 04, 2021 ] Sep 03, 2019 by Aly J. Yale

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Deduction / Credit Details Eligibility / Limits
Pass-through tax deduction You can deduct up to 20% of your qualifying business income, plus 20% of qualified REIT dividends. You must qualify as a sole proprietorship, partnership, or S corporation. C corporations are ineligible. The total deduction depends on your tax bracket.
The 14-day rule You don’t need to pay income taxes on rental earnings if you rent the property for no more than 14 days per year. You must rent the property for 14 days or less per year. You must also use the home for yourself at least 14 days per year or 10% of the days you rent it out.
Business expenses As with any business, you can deduct many of the day-to-day expenses you incur in your rental endeavors. This can include hosting and cleaning fees, occupancy taxes, insurance premiums, supply expenses, and other costs you incur while operating your business. You must be operating your rental business to make a profit, and any expenses must be considered an “ordinary and necessary” cost of doing business. 
Depreciation deduction You can claim depreciation deductions on both the cost of the property and any money you’ve spent to improve it.  You must own the property for which you’re claiming the depreciation, and you must be collecting income on it. Routine repairs and maintenance are not depreciable. 
Mortgage interest tax deduction This deduction allows you to write off the interest you pay across your mortgage loans. There is no limit to this deduction, as it is considered a business expense.
Restoration and betterment deductions You can write off expenses incurred when improving or restoring your property. The expenses must have gone toward fixing a pre-existing defect, enlarging or expanding the property, increasing the home’s strength or capacity, or replacing/repairing a structural part of the property.
Travel deductions You can deduct mileage and other expenses incurred when traveling to and from your rental properties to conduct business. You must keep a record of your mileage, and you can’t deduct travel expenses related to improving the property.

Table source: Internal Revenue Service.

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