Nobody likes talking about taxes.
The time comes around every year when we have to sit down and look at our income and spending over the past year. And even though you’re not running a hotel with your vacation rental property business, you’re still going to have to plan ahead for including short-term rental taxes as part of your booking process and being prepared to file them appropriately when it’s time.
Fortunately, Seaside Vacations is here to help you figure out what kind of taxes you’ll need to be prepared for and tell you how the process works when you let us help you manage your vacation rental property. Keep reading for our top 5 questions that vacation rental property owners ask about tax season.
Please note: this guide is not a substitute for professional tax advice. For specific questions, contact a certified tax professional or, if Seaside Vacations manages your home, please reach out to your property coordinator for assistance.
1. What kind of taxes am I supposed to file?
In North Carolina, when running a short-term vacation rental business, you’ll be expected to file income tax AND lodging tax, also known as Vacation Rental Tax (VRT).
You’re probably already relatively familiar with income tax, which you report and/or pay annually to both the state and federal governments. This tax is based on your “taxable” income minus deductions (which we’ll talk about a little later) and this is something you handle based on the income from your vacation rental property as a business.
Vacation Rental Tax for a short-term rental is a little bit different and actually changes from state to state, so you’ll want to make sure that you are familiar with the lodging tax laws in North Carolina. In North Carolina, if you rent out your property for more than 15 days out of the year, you’ll want to make sure that either you or your property management company are collecting and filing VRT for your rentals. This is one of those reasons why it can be beneficial to work with a property management company like Seaside Vacations. In North Carolina, the property management company or the marketplace organization like Airbnb or Vrbo are the ones responsible for collecting and filing VRT on short-term rentals, so that’s definitely something to keep in mind.
2. How do I collect taxes from guests during booking?
The Vacation Rental Tax comprises 6.75% NC Sales Tax and 6% Currituck/Dare Occupancy Tax. When you manage your property with Seaside Vacations, both are charged on all fees of a reservation except for travel insurance and if there is a refundable security deposit charged. If the rental is longer than 90 days then it's considered long term and there's no tax. We collect the taxes from the guest and pay it out to the state and county after departure. You won’t need to worry about filing anything for Vacation Rental Tax.
3. What about deductions?
In terms of lodging taxes, most tax professionals say that there aren’t really any deductions or exemptions that apply in most cases. If Seaside Vacations or a similar property management company are helping you run your business and rent out your property, this isn’t something that you are going to have to spend too much time considering.
However, for your income taxes through the federal and/or state government, the good news is that you can write off many different types of expenses that will lower your overall income for tax purposes. If you recently renovated the home or completed a major improvement project, for example, you can write off the costs as a business expense. You may also be able to write off mortgage interest, travel expenses, and any supplies or added amenities that you include for your guests so be sure to do your research and consult with a licensed tax professional before filing to ensure that you don’t miss anything. Just be sure to keep all receipts and purchase orders as proof.
4. What do I need to keep a record of throughout the year?
In short? Everything.
According to Turbotax, keeping a clear and organized record of EVERY expense related to your vacation rental property business will help you make sure that you’re taking advantage of every opportunity to save on deductions while keeping you prepared in the event of an audit.
Whether or not you decide to work with a property management company, it’s important to remember that your vacation rental property is a business and treat it accordingly. Document everything you spend and earn and keep track of the days you’re renting out as well as the days that you spend staying at the property. Working with a company like Seaside Vacations can make this easier since we’ll have digitized records of what’s going on with your property and white dates are rented or open. You’ll want to make sure, regardless, that you have an organized system for keeping track of what’s going on with your property so that you aren’t faced with surprises come tax season.
5. When do I need to file my return?
For Income Tax, you will receive your 1099 by January 31st which will be the full gross income on your property. You are responsible for deducting their expenses like repairs and commission, etc, and filing with the IRS before the tax deadline, which is usually April 18.
Give Us a Call Today!
We love property management on the Outer Banks and it shows. Family-owned and locally managed for over 30 years, Seaside Vacations goes above and beyond to make sure property management is Hassle-Free, meaning that we’ll take care of the details so that you can get back to taking care of the things that matter most to you. We can help you figure out VRT, maintenance, and listings on websites like Airbnb, Vrbo, Booking.com, Google Travel, and Homes& Villas by Marriot International (HVMI) while handling everything that comes through those channels, from bookings to guest inquiries and reviews.
Once you’ve found the perfect home to enjoy the best of both worlds, be sure to fill out this form for your Complimentary Rental Projection or give us a call at (252) 616-1056 to find out more about property management with Seaside Vacations today!
We’re experienced and here to help.
