Short-term rentals, such as those listed on Airbnb, VRBO, or similar platforms, are treated differently from long-term rentals under IRS rules because the activity may be considered more like a business than a passive investment.

The distinction largely hinges on how much you provide in services and how frequently you rent the property. If you offer substantial services—like daily cleaning, concierge-style amenities, or meal provision—the IRS may classify your rental income as active business income, which could subject it to self-employment tax in addition to regular income tax.

By contrast, long-term rentals (typically leases of 30 days or more without extra services) are usually considered passive income, reported on Schedule E, and not subject to self-employment tax.

Another key difference is the treatment of expenses and deductions. While both long-term and short-term rental owners can generally deduct operating expenses like mortgage interest, repairs, insurance, and property management fees, short-term rental owners may have more flexibility to deduct costs associated with marketing, platform fees, or certain home improvements that cater specifically to guests.

However, because the IRS may consider the property a business, timing and documentation of these deductions become critical. Accurate records of days rented, services provided, and associated costs can make a significant difference if your return is ever reviewed.

Finally, short-term rentals also bring additional state and local tax obligations that long-term rentals might not. Occupancy taxes, business licenses, and local transient lodging taxes are often required for short-term rentals. Plus, the way your income interacts with other business activities—such as eligibility for the Qualified Business Income (QBI) deduction—can be affected by how the IRS classifies your rental. For these reasons, it’s important to carefully review each short-term rental property with a tax professional to ensure compliance and maximize your deductions.