How is Airbnb rental income taxed in 2025?

Airbnb rental income is taxable, but the rules depend on how many days you rent and whether you provide substantial services to guests.

The 14-day rule (Augusta Rule): If you rent your home for 14 days or fewer per year, the income is completely tax-free and you do not need to report it. This is one of the few truly tax-free income sources in the tax code (IRC Section 280A(g)).

More than 14 days - Schedule E or Schedule C?

• Schedule E (Rental): If you simply provide the space without substantial services (hotel-like services such as daily cleaning, concierge, meals), report on Schedule E. You can deduct mortgage interest, property taxes, insurance, utilities, repairs, depreciation, cleaning fees, Airbnb service fees, and supplies. Expenses are allocated based on rental days vs. personal days.
• Schedule C (Business): If you provide substantial services (regular cleaning during the stay, meals, guided tours), the IRS may consider this a business rather than a rental. You would owe self-employment tax but can also deduct more expenses.

Depreciation: You can depreciate the residential property portion (not land) over 27.5 years. For a $300,000 home where $60,000 is land, that is $240,000 / 27.5 = $8,727 per year, prorated by the rental-use percentage. Be aware that depreciation reduces your cost basis, which increases capital gains when you sell.

Short-term rental loophole: If your average rental period is 7 days or fewer AND you materially participate, losses can offset W-2 income (unlike typical passive rental losses). This is a significant advantage over long-term rentals, where passive losses are limited to $25,000 if your AGI is under $100,000.