Short-term rentals on platforms like Airbnb and VRBO have become a major investment strategy for real estate investors across the Greenville, SC metro area and beyond. But the tax rules for short-term rentals (STRs) are fundamentally different from long-term rentals—and getting them wrong can cost you thousands in missed deductions or unexpected tax bills.
At Beacon Accounting, we specialize in real estate investor tax strategy. Here's your complete guide to short-term rental tax deductions.
Short-Term vs. Long-Term Rental: Why It Matters for Taxes
The IRS defines a short-term rental as a property where the average rental period is 7 days or fewer (or 30 days or fewer if you provide substantial services like cleaning, concierge, or meals). This classification changes everything about how your rental income and losses are treated.
Long-term rentals are generally classified as passive activities, meaning losses can only offset other passive income (with a limited $25,000 exception for active participants under $150K AGI). Short-term rentals, however, may qualify as a non-passive activity if you materially participate—unlocking the ability to deduct losses against your W-2, business, or other active income.
Material Participation: The Key to Unlocking STR Deductions
To treat your short-term rental as non-passive, you must meet one of the IRS's material participation tests. The most commonly used tests are:
- 500-hour test: You personally participate in the rental activity for more than 500 hours during the year
- Substantially all test: Your participation constitutes substantially all the participation in the activity (no employees or contractors doing more work than you)
- 100-hour/more-than-anyone test: You participate for at least 100 hours and no one else participates more than you
For STR owners who self-manage—handling guest communication, cleaning coordination, pricing adjustments, maintenance, and property oversight—meeting the 100-hour threshold is very achievable. Keep a detailed time log. The IRS can and does challenge material participation claims, and contemporaneous records are your best defense.
The 14-Day Rule (Augusta Rule)
If you rent your property for 14 days or fewer per year, the rental income is completely tax-free. You don't even report it. This is sometimes called the "Augusta Rule" after the Masters golf tournament, where Augusta homeowners rent their houses for tournament week.
However, if you use this rule, you cannot deduct any rental expenses beyond what you'd normally deduct as a personal residence (mortgage interest and property taxes on Schedule A). This rule is most useful for properties that are primarily personal residences with occasional rental use—not dedicated STR investments.
South Carolina Sales Tax on Short-Term Rentals
This catches many new STR hosts off guard: South Carolina charges a 7% state accommodations tax on rentals of 90 days or fewer. Additionally, depending on your location, you may owe local accommodations taxes (Greenville County charges an additional 3%).
Key points on SC sales tax compliance:
- Airbnb and VRBO collect and remit SC state accommodations tax automatically in most cases
- Local accommodations taxes may or may not be collected by the platform—verify with your county
- You must register with the SC Department of Revenue and file accommodations tax returns even if the platform collects on your behalf
- Failure to register and file can result in penalties, even if all tax was properly remitted by the platform
Deductible Expenses for Short-Term Rentals
Here's where STR ownership gets exciting from a tax perspective. Nearly every cost associated with operating your rental is deductible:
Property-Level Deductions
- Mortgage interest (allocated to rental use percentage)
- Property taxes
- Insurance (including specialized STR liability coverage)
- Depreciation on the building (27.5-year schedule for residential)
- Repairs and maintenance: HVAC servicing, plumbing fixes, paint touch-ups, appliance repairs
- HOA fees (if applicable)
Furnishing and Setup Deductions
- Furniture: Beds, couches, dining sets, desks—all depreciable over 5-7 years, or potentially deductible immediately under Section 179 or bonus depreciation
- Appliances: Washer, dryer, dishwasher, coffee maker, smart TV
- Linens, towels, kitchenware: Generally deductible in the year purchased as supplies
- Decor and staging: Artwork, rugs, curtains, outdoor furniture
- Smart home technology: Keyless entry systems, security cameras, noise monitors, smart thermostats
Operating Expense Deductions
- Cleaning fees: Whether you pay a cleaning service or do it yourself (track your time for material participation)
- Platform fees: Airbnb host fees (typically 3%), VRBO fees, Booking.com commissions
- Property management software: PriceLabs, Hospitable, Guesty, OwnerRez
- Professional photography for listings
- Guest supplies: Toiletries, coffee, snacks, welcome gifts
- Utilities: Electric, gas, water, internet, cable/streaming services
- Lawn care and landscaping
- Pest control
Professional and Administrative Deductions
- CPA and tax preparation fees
- Legal fees (entity formation, lease review)
- Travel to the property for management purposes (mileage, lodging if out of area)
- Continuing education: STR courses, conferences, books
How STR Deductions Differ from Long-Term Rentals
Several deduction categories are unique to or significantly larger for STR operators:
- Furnishing costs are a major STR expense that long-term landlords rarely incur (tenants bring their own furniture)
- Turnover costs (cleaning, laundry, restocking) happen weekly or even multiple times per week, not once a year
- Marketing and platform fees don't exist for traditional landlords
- Higher utility costs since you're paying utilities that tenants would normally cover
- More frequent repairs due to higher guest turnover and wear
The flip side: STR gross revenue is typically 2-3x higher than long-term rental income for the same property, making these additional expenses worthwhile.
Entity Structure for Short-Term Rentals
Most STR investors operate through an LLC for liability protection. The tax treatment depends on your LLC election—single-member LLCs are disregarded entities (reported on Schedule E or C), while multi-member LLCs file as partnerships. Some high-revenue STR operators benefit from an S-Corp election to reduce self-employment tax, though this is situation-dependent.
Review our accounting services for real estate investors to learn how we help STR owners structure their businesses for maximum tax efficiency.
Record-Keeping Best Practices
The IRS scrutinizes STR deductions more heavily than traditional rental deductions because of the material participation and personal use rules. Protect yourself with:
- A dedicated bank account and credit card for each STR property
- A contemporaneous time log documenting your management activities
- Receipts for all expenses (use an app like Dext or Hubdoc to capture them)
- A personal use log tracking any nights you or family members stay at the property
- Monthly P&L statements so you know exactly where you stand
Get Expert STR Tax Guidance
Short-term rental taxation is one of the most nuanced areas in real estate tax law. The difference between a CPA who understands STR rules and one who doesn't can be tens of thousands of dollars in tax savings—or unexpected liabilities.
Beacon Accounting works with STR investors throughout the Greenville, SC metro area. Our flat-fee monthly plans include proactive tax planning, not just year-end compliance. Get started today.