US federal tax rules for short-term rental income
The federal rules that decide whether short-term rental income is taxed, which schedule it goes on, how losses are treated, when platforms file Form 1099-K and how the property is depreciated.
The federal rules in brief
A home that its owner also uses as a residence can be rented out for fewer than 15 days in a year without the rent being included in income, under section 280A(g) of the Internal Revenue Code12. Beyond that, federal treatment rests on published tests with numbers written into them: days of personal use, the average guest stay, hours worked, platform payments and depreciation periods.
This page sets out those tests as the IRS publishes them for 2025 returns, with the changes made by Public Law 119-21, the reconciliation act approved on 4 July 20253. IRS news releases call that law the One, Big, Beautiful Bill, and the IRS newsroom files its guidance under the heading “Working Families Tax Cuts”45.
| Rule | The number in it | Source |
|---|---|---|
| Rental income of a home also used as a residence is excluded | Rented less than 15 days in the year | 26 U.S.C. 280A(g); IRS Publication 527 |
| Home counts as a residence | Personal use exceeds the greater of 14 days or 10% of days rented at a fair rental | 26 U.S.C. 280A(d)(1); IRS Topic 415 |
| Not a rental activity under the passive activity rules | Average period of customer use of seven days or less | Treas. Reg. 1.469-1T(e)(3)(ii)(A); IRS Publication 925 |
| Not a rental activity, with significant personal services | Average period of customer use of 30 days or less | Treas. Reg. 1.469-1T(e)(3)(ii)(B) |
| Material participation, test 1 | More than 500 hours in the year | Treas. Reg. 1.469-5T(a)(1) |
| Material participation, test 3 | More than 100 hours and not less than any other individual | Treas. Reg. 1.469-5T(a)(3) |
| Material participation, test 4 | Significant participation activities (more than 100 hours each) exceeding 500 hours in total | Treas. Reg. 1.469-5T(a)(4) and (c) |
| Material participation, test 5 | Any five of the ten preceding taxable years | Treas. Reg. 1.469-5T(a)(5) |
| Material participation, test 6 | Any three preceding taxable years (personal service activity) | Treas. Reg. 1.469-5T(a)(6) |
| Material participation, test 7 | Not available at 100 hours or less | Treas. Reg. 1.469-5T(b)(2)(iii) |
| Special allowance for active participation in rental real estate | Up to $25,000; reduced by 50% of modified AGI above $100,000; generally none at $150,000 or more | IRS Publication 925 |
| Special allowance, married filing separately and living apart all year | $12,500; phase-out between $50,000 and $75,000 of modified AGI | IRS Instructions for Form 8582 |
| Active participation | Ownership of at least 10% of the rental property | IRS Publication 527 |
| Real estate professional | More than half of personal services, and more than 750 hours, in real property trades or businesses | IRS Publication 925 |
| Form 1099-K from a third party settlement organization | Gross payments over $20,000 and more than 200 transactions | 26 U.S.C. 6050W(e); IRS IR-2025-107 |
| Form 1099-K for payment card transactions | No threshold amount | IRS Form 1099-K FAQs |
| Form 1099-MISC for rent paid over by a property manager | $2,000 or more | IRS Instructions for Forms 1099-MISC and 1099-NEC (Rev. December 2026) |
| Residential rental property | 80% or more of gross rental income from dwelling units | 26 U.S.C. 168(e)(2)(A); IRS Publication 946 |
| Residential rental property, recovery period | 27.5 years (GDS); 30 years (ADS) | 26 U.S.C. 168(c); IRS Publications 527 and 946 |
| Nonresidential real property, recovery period | 39 years (GDS) | 26 U.S.C. 168(c); IRS Publication 946 |
| Appliances, carpets and furniture in a residential rental | 5 years (GDS); 9 years (ADS) | IRS Publication 527 |
| Special depreciation allowance | 100% for qualified property acquired after 19 January 2025 | IRS IR-2026-06; IRS Publication 527 |
| Property eligible for the special allowance | MACRS recovery period of 20 years or less | IRS Publication 946 |
| Self-employment tax | 12.4% Social Security and 2.9% Medicare; usually owed at net earnings of $400 or more | IRS Topic 554 |
| Net investment income tax | 3.8%; thresholds of $250,000 (joint), $125,000 (married filing separately), $200,000 (single or head of household) | IRS Topic 559 |
Figures as written in the cited statute, regulation or IRS publication. GDS and ADS are the General and Alternative Depreciation Systems; MACRS is the Modified Accelerated Cost Recovery System. AGI is adjusted gross income.
Source: Legal Information Institute, Cornell Law School, Internal Revenue Service1246121314151617192324252627
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This table was compiled by Booked News and may be reused with credit and a link (CC BY 4.0). The figures themselves belong to the bodies that published them, named in the sources.
The 14-day rule and personal use
Section 280A(g) applies to a dwelling unit that the taxpayer uses as a residence during the year and that is “actually rented for less than 15 days”1. No deduction is allowed because of the rental use, and the rental income is left out of gross income1. Publication 527 says such a home should not be reported on Schedule E; its mortgage interest, property taxes and any qualified casualty loss go on Schedule A as normally allowed6. An IRS video script on renting a vacation home puts the limit as two weeks a year or less7.
The exclusion depends on the home being a residence, and the code sets that test in days too. A taxpayer uses a dwelling unit as a residence if personal use during the year exceeds the greater of 14 days or 10% of the days it is rented at a fair rental12. IRS Topic 415 gives an example: an owner who lives in a main home for 11 months and in a vacation home for the other 30 days uses the vacation home as a residence unless it is rented at a fair rental value for more than 300 days that year2.
Topic 415 counts as personal use any day the unit is used by the owner or anyone else with an interest in it, by a family member (unless it is their main home and they pay a fair rental price), by anyone under an arrangement that lets the owner use another dwelling, or by anyone paying less than a fair rental price2. A day spent working substantially full time on repairs and maintenance, not improvements, is not a day of personal use, according to Publication 5276.
When a home used as a residence is rented for 15 days or more in the year, the rent is reported and total expenses are divided between rental and personal use by the number of days used for each2. Rental expenses are capped at gross rental income less the rental portion of mortgage interest, real estate taxes, casualty losses and rental costs such as realtors’ fees and advertising; anything above the cap may be carried forward to the next year, subject to that year’s limit2. Schedule E asks for each property’s fair rental days and personal use days8.
Schedule E or Schedule C
Rental income and expenses generally go on Schedule E (Form 1040), according to Topic 4152. The 2025 Schedule E asks for a type of property for each rental, and its list includes code 3, “Vacation/Short-Term Rental”8.
Publication 527 moves a rental to Schedule C, the form for business profit or loss, when the owner provides “substantial services that are primarily for your tenant’s convenience, such as regular cleaning, changing linen, or maid service”6. Substantial services do not include the furnishing of heat and light, cleaning of public areas or trash collection6. The 2025 Schedule E instructions state the rule in terms of “significant services”, with maid service as the example9.
The schedule matters for self-employment tax. The Schedule C instructions describe Schedule E as the place for rental real estate income “that is not subject to self-employment tax”10, and Publication 527 says an owner providing substantial services may have to pay self-employment tax on the rental income6. Publication 334 says rent for the use of hotels, boarding houses or apartment houses is subject to the tax when the owner provides services primarily for the occupants’ convenience, beyond those normally provided with rooms rented for occupancy only11. IRS Topic 554 gives the self-employment tax rate as 12.4% for Social Security and 2.9% for Medicare, usually owed when net earnings from self-employment are $400 or more12.
Passive activity rules and the 7-day average stay
Losses from passive activities generally cannot offset income other than passive income, and a rental activity is passive even when the owner materially participates, unless the owner does so as a real estate professional614. An owner who actively participates in rental real estate may deduct up to $25,000 of loss from nonpassive income614. Active participation, a lower bar than material participation, requires owning at least 10% of the rental property and making management decisions such as approving new tenants and deciding on rental terms, or arranging for others to provide services614. Publication 925 says the $25,000 is reduced by 50% of modified adjusted gross income above $100,000 and is generally unavailable at $150,000 or more, or $75,000 or more for married people filing separately14.
A rental that is also a residence sits outside these rules. Publication 925 lists the rental of a dwelling unit used for personal purposes for more than the greater of 14 days or 10% of the fair-rental days among activities that are not passive activities14. For such a home, Topic 415’s limit on rental expenses applies2.
Many short-term rentals fall outside the rental category altogether. Under Treasury Regulation 1.469-1T(e)(3)(ii)(A), an activity is not a rental activity if “the average period of customer use for such property is seven days or less”15. A second exception covers an average of 30 days or less when significant personal services are provided by or on behalf of the owner, and the regulation lists further exceptions, among them extraordinary personal services15. Publication 925 says to figure the average by dividing the total number of days in all rental periods by the number of rentals during the tax year14. Significant personal services include only services performed by individuals, and exclude services needed for lawful use of the property, repairs or improvements that extend its useful life, and services similar to those commonly provided with long-term rentals14.
An activity that meets one of these exceptions is not a rental activity. The Form 8582 instructions then ask whether it is a trade or business activity and whether the owner materially participated13. Income and losses from a trade or business activity without material participation go in Part V of Form 8582; an owner who did materially participate reports them on the forms or schedules normally used13. Publication 925 describes the $25,000 allowance as applying to a passive rental real estate activity14.
The seven material participation tests
Treasury Regulation 1.469-5T(a) says an individual materially participates in an activity for a year if and only if one of seven tests is met16.
- The individual participates for more than 500 hours during the year16.
- The individual’s participation is substantially all of the participation of all individuals in the activity, including non-owners16.
- The individual participates for more than 100 hours and not less than any other individual, including non-owners16.
- The activity is a significant participation activity and the individual’s participation in all such activities exceeds 500 hours; a significant participation activity is a trade or business in which the individual participates for more than 100 hours without materially participating under another test16.
- The individual materially participated in any five of the ten taxable years before the year, consecutive or not16.
- For a personal service activity, the individual materially participated in any three earlier taxable years, consecutive or not16.
- On all the facts and circumstances, the individual participates on a regular, continuous and substantial basis; this test is not available to someone who participates for 100 hours or less16.
Publication 925 adds that a spouse’s participation counts, that work done as an investor does not count unless the owner is directly involved in day-to-day management or operations, and that participation can be shown by any reasonable method, such as an appointment book, calendar or narrative summary14.
The real estate professional rule has its own count. An owner qualifies if more than half of the personal services performed in all trades or businesses during the year were in real property trades or businesses in which the owner materially participated, and those services totalled more than 750 hours14. For such an owner, a rental real estate activity with material participation is not treated as passive1410.
Form 1099-K thresholds for payment platforms
Under section 6050W(e) of the tax code, a third party settlement organization has to report a payee’s third party network transactions on Form 1099-K only if the gross amount exceeds $20,000 and the number of transactions exceeds 20017. The IRS set out the test in news release IR-2025-107 on 23 October 2025, saying Public Law 119-21 had retroactively reinstated the threshold in effect before the American Rescue Plan Act of 20214. The Instructions for Form 1099-K (Rev. December 2026) repeat the same two figures18. Payment card transactions are treated separately, and the IRS says there is no threshold amount for them19.
The threshold has moved several times. As enacted in 2008, section 6050W(e) used the same $20,000 and 200-transaction test20. Section 9674 of the American Rescue Plan Act replaced it with a $600 threshold, regardless of the number of transactions, for calendar years beginning after 31 December 20212017. The IRS delayed the change: Notices 2023-10 and 2023-74 kept the $20,000 and 200 test for penalty purposes for 2022 and 2023, and Notice 2024-85 set $5,000 for 2024 and $2,500 for 2025, with $600 to follow for calendar years beginning after 31 December 202520. Public Law 119-21 then rewrote section 6050W(e) to the $20,000 and 200 test, effective as if included in section 9674 of the 2021 act17.
The amount on the form is gross, without adjustment for credits, discounts, fees or refunds, and the form must reach the payee by 31 January of the following year, according to Notice 2024-8520. The IRS says a platform may still send a Form 1099-K below the federal thresholds, that a state may set a lower threshold, and that income must be reported whether or not a form arrives1921.
Airbnb’s help centre says it issues Form 1099-K to hosts and co-hosts who are US citizens or US tax residents and had more than $20,000 in gross transactions and over 200 payment transactions in 202522. It reports gross reservation totals, including cleaning fees and pass-through taxes, before deducting its own fees and commissions22. It lists Arkansas, the District of Columbia, Illinois, New Jersey, Maryland, Massachusetts, Montana, Vermont and Virginia as having separate lower filing thresholds, and says a form for a host who meets only a state threshold is filed with that state alone22.
Rent collected by a property manager goes on a different form. The Instructions for Forms 1099-MISC and 1099-NEC (Rev. December 2026) say a real estate agent or property manager must use Form 1099-MISC to report rent paid over to the property owner, and set the box 1 threshold at $2,000 or more for all types of rents23. The minimum rose to $2,000 for tax years beginning after 2025 and may be adjusted for inflation from calendar year 202723.
Depreciation of the building and furnishings
Residential rental property is depreciated over 27.5 years under the General Depreciation System, and nonresidential real property over 39 years, under section 168(c) of the tax code and Publication 9462425. Publication 527 gives 30 years for residential rental property under the Alternative Depreciation System, or 40 years for property placed in service before 1 January 20186. Appliances, carpets and furniture used in a residential rental real estate activity are 5-year property, with 9 years under the alternative system625.
A building is residential rental property if 80% or more of its gross rental income for the year comes from dwelling units2524. Publication 946 defines a dwelling unit as a house or apartment used to provide living accommodations, and excludes a unit in a hotel, motel or other establishment where more than half the units are used on a transient basis25. Publication 527 uses the same exclusion and adds inns to the list6. Neither publication defines a transient basis, and neither uses the seven-day average stay from the passive activity rules in these definitions625.
Public Law 119-21 changed the special depreciation allowance. The IRS says the law provides a permanent 100% additional first year depreciation deduction for qualified property acquired after 19 January 2025, and Publication 527 describes the 100% allowance as restored for qualified property acquired and placed in service after that date266. For qualified property placed in service in the first tax year ending after 19 January 2025, owners may elect 40% instead, or 60% for certain property with longer production periods and certain aircraft26. Qualified property acquired before 20 January 2025 and placed in service in 2025 is limited to 40%, according to Publication 94625. Qualified property includes tangible property depreciated under the Modified Accelerated Cost Recovery System with a recovery period of 20 years or less, and Publication 527 says some property used in connection with residential real property activities may qualify25246.
The net investment income tax
Rental income can also fall under the net investment income tax. IRS Topic 559 sets the tax for individuals at 3.8% of the lesser of net investment income or the amount by which modified adjusted gross income exceeds $250,000 for married couples filing jointly or a qualifying surviving spouse, $125,000 for married people filing separately or $200,000 for single filers and heads of household27. Rents count as net investment income unless derived in a trade or business to which the tax does not apply, and the tax does not apply to income from an active business27. Topic 415 adds that rental losses are generally limited by the at-risk rules as well as the passive activity rules2.
Occupancy taxes and state income tax
Federal income tax is one layer of the bill. Occupancy, lodging and sales taxes on short stays are set by states, counties and cities, and state income tax on rental income follows each state’s own rules. Booked News covers those taxes in a separate reference, short-term rental taxes in US cities.
Common questions
Do I pay tax on Airbnb income if I rent for less than 15 days?
Not when the home is also the owner’s residence for the year. Under section 280A(g), if a dwelling unit used as a residence is rented for fewer than 15 days in the year, the rental income is not included in gross income and no rental expenses are deducted19. The home counts as a residence if personal use exceeds the greater of 14 days or 10% of the days it is rented at a fair rental2.
Is Airbnb income reported on Schedule C or Schedule E?
Rental income generally goes on Schedule E, whose property types include “Vacation/Short-Term Rental”28. Publication 527 says it goes on Schedule C instead when the owner provides substantial services primarily for the tenant’s convenience, such as regular cleaning, changing linen or maid service, and that self-employment tax may then apply6. Heat and light, cleaning of public areas and trash collection are not substantial services6. The seven-day average-stay rule belongs to the passive activity rules; the Schedule C test turns on services146.
What is the 7-day rule for rentals?
It is an exception in the passive activity regulations. Under Treasury Regulation 1.469-1T(e)(3)(ii)(A), an activity is not a rental activity if the average period of customer use is seven days or less15. Publication 925 says to figure the average by dividing the total days in all rental periods by the number of rentals in the year14. The activity is then tested as a trade or business, and it is not passive if the owner materially participates, for example with more than 500 hours of work in the year1416.
Will I get a 1099-K from Airbnb?
Airbnb says it issues Form 1099-K to hosts and co-hosts who are US citizens or tax residents with more than $20,000 in gross transactions and over 200 payment transactions in 202522. It names Arkansas, the District of Columbia, Illinois, New Jersey, Maryland, Massachusetts, Montana, Vermont and Virginia as having lower state thresholds, and it reports gross totals before its fees22. The IRS says income must be reported whether or not a Form 1099-K arrives21.
Is a short-term rental depreciated over 27.5 or 39 years?
Residential rental property is depreciated over 27.5 years and nonresidential real property over 39 years under the General Depreciation System2524. Residential rental property earns 80% or more of its gross rental income from dwelling units, and a dwelling unit excludes a unit in a hotel, motel or other establishment where more than half the units are used on a transient basis25. Publications 527 and 946 do not define a transient basis or apply the seven-day test to this question625.
What is the Form 1099-K threshold for 2026?
The Instructions for Form 1099-K (Rev. December 2026) say a third party settlement organization reports a payee’s transactions when the gross amount exceeds $20,000 and the number of transactions exceeds 20018. Public Law 119-21 restored that test retroactively in place of the $600 threshold enacted in 20211720. Payment card transactions have no threshold, and a state may set a lower one19.
Sources
- Legal Information Institute, Cornell Law School, 26 U.S. Code § 280A, Disallowance of certain expenses in connection with business use of home, rental of vacation homes, etc.. Primary source, read 2026-10-08.
- Internal Revenue Service, Topic no. 415, Renting residential and vacation property (2026-09-24). Primary source, read 2026-10-08.
- US Government Publishing Office (govinfo), Public Law 119-21 (H.R. 1), An act to provide for reconciliation pursuant to title II of H. Con. Res. 14 (2025-07-04). Primary source, read 2026-10-08.
- Internal Revenue Service, IRS issues FAQs on Form 1099-K threshold under the One, Big, Beautiful Bill; dollar limit reverts to $20,000 (IR-2025-107) (2025-10-23). Primary source, read 2026-10-08.
- Internal Revenue Service, Working Families Tax Cuts news (2026-09-14). Primary source, read 2026-10-08.
- Internal Revenue Service, Publication 527 (2025), Residential Rental Property (Including Rental of Vacation Homes). Primary source, read 2026-10-08.
- Internal Revenue Service, Renting Your Vacation Home, YouTube video text script (2026-09-14). Primary source, read 2026-10-08.
- Internal Revenue Service, Schedule E (Form 1040) 2025, Supplemental Income and Loss. Primary source, read 2026-10-08.
- Internal Revenue Service, 2025 Instructions for Schedule E (Form 1040) (2026-04-30). Primary source, read 2026-10-08.
- Internal Revenue Service, Instructions for Schedule C (Form 1040) (2025). Primary source, read 2026-10-08.
- Internal Revenue Service, Publication 334 (2025), Tax Guide for Small Business. Primary source, read 2026-10-08.
- Internal Revenue Service, Topic no. 554, Self-employment tax (2026-09-24). Primary source, read 2026-10-08.
- Internal Revenue Service, Instructions for Form 8582 (2025). Primary source, read 2026-10-08.
- Internal Revenue Service, Publication 925 (2025), Passive Activity and At-Risk Rules. Primary source, read 2026-10-08.
- Legal Information Institute, Cornell Law School, 26 CFR § 1.469-1T, General rules (temporary). Primary source, read 2026-10-08.
- Legal Information Institute, Cornell Law School, 26 CFR § 1.469-5T, Material participation (temporary). Primary source, read 2026-10-08.
- Legal Information Institute, Cornell Law School, 26 U.S. Code § 6050W, Returns relating to payments made in settlement of payment card and third party network transactions. Primary source, read 2026-10-08.
- Internal Revenue Service, Instructions for Form 1099-K (Rev. December 2026) (2026-06-01). Primary source, read 2026-10-08.
- Internal Revenue Service, Form 1099-K FAQs: General information (2026-04-03). Primary source, read 2026-10-08.
- Internal Revenue Service, Notice 2024-85, Revised Timeline Regarding Implementation of Amended Section 6050W(e) (2024-12-16). Primary source, read 2026-10-08.
- Internal Revenue Service, Understanding your Form 1099-K (2026-06-28). Primary source, read 2026-10-08.
- Airbnb, Inc., US tax documents from Airbnb (Help Center article 414). Primary source, read 2026-10-08.
- Internal Revenue Service, Instructions for Forms 1099-MISC and 1099-NEC (Rev. December 2026). Primary source, read 2026-10-08.
- Legal Information Institute, Cornell Law School, 26 U.S. Code § 168, Accelerated cost recovery system. Primary source, read 2026-10-08.
- Internal Revenue Service, Publication 946 (2025), How To Depreciate Property. Primary source, read 2026-10-08.
- Internal Revenue Service, Treasury, IRS issue guidance on the additional first year depreciation deduction amended as part of the One, Big, Beautiful Bill (IR-2026-06) (2026-01-14). Primary source, read 2026-10-08.
- Internal Revenue Service, Topic no. 559, Net investment income tax (2026-09-24). Primary source, read 2026-10-08.
Checked by the Booked News standards desk: every figure on this page was matched against the source it is marked with on 8 October 2026. The page is updated when its sources publish new figures. To report an error, write to the desk with the page address; see the corrections policy.
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