Are short-term rental taxes (state and town) reportable as expenses for a rental?

[DaveLaQ]

Just started paying these. There's a section under rental business expenses that includes a box for "Other Taxes." Not sure if these can go there.

[Mike9241]

yes they would be reported as taxes

[tagteam · Accepted solution]

Many owners treat these types of taxes (which are essentially sales taxes or a variant thereof) as "pass-throughs"; they are not reported to the IRS at all on any form.

If you want to deduct the taxes as expenses, you will have to report them as income received as well. In that event, you can report them as taxes paid or miscellaneous expenses.

[DaveLaQ]

Great, thanks. Am I right in assuming, though, that I can deduct these as direct rental expenses (100%), rather than enter them with other taxes, which apply to the property and not strictly the rentals themselves?

[tagteam]

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@DaveLaQ wrote:

.....which apply to the property and not strictly the rentals themselves?

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I have absolutely no idea to what you are referring. Typically, state and local jurisdictions that collect rental taxes charge a rate based upon the rental income received and not the property itself, unless you are referring to personal property taxes for personal property used in a rental unit.

Could you please clarify what these taxes are levied for and their exact nature?

[DaveLaQ]

It's the room occupancy tax for my state and town. It's based solely on the income generated by rent payments for short-term stays. Since it's based on only rent and is not connected to personal use of the house in any way, I was thinking I could deduct it as a direct expense. Like cleaning we do between renters or stamps we buy to send out contracts. Does that clarify?

[tagteam]

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@DaveLaQ wrote:

It's the room occupancy tax for my state and town. It's based solely on the income generated by rent payments for short-term stays............Does that clarify?

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Yes, and you can either use the pass-through method or report the taxes as income received and then as an expense paid and deducted from that income.

[DaveLaQ]

Yes, thank you for that. But my current query regards whether I can deduct this expense as a direct expense (100% deductible) or must treat it as an indirect expense (deductible only to the extent that the home is used for rental income, i.e. using the ratio of the rented days to the [rental + personal days] sum), which is how the vast majority of expenses for the property are deducted.

I'm thinking that, like other expenses that are exclusive to the rental aspect and not the property's entire usage (e.g. house cleaning between guests), the room occupancy tax could be treated as a direct expense. Perhaps I've answered my own question, but no one appears to be jumping on-board. 🙂

[tagteam · Accepted solution]

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@DaveLaQ wrote:

I'm thinking that, like other expenses that are exclusive to the rental aspect and not the property's entire usage (e.g. house cleaning between guests), the room occupancy tax could be treated as a direct expense. 

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It is since the expense would not have been incurred had you not rented the property.

[DaveLaQ]

I like it. Thank you very much.

[qofmiwok]

I know what you're talking about.  Yes, anything that should be 100% allocated to the rental as a direct expense of the rental, enter it in the "other" lines that don't multiple by any %.  For example, I do not enter cleaning expenses under cleaning, because of that same reason.  I write it by hand as Direct cleaning expense so the whole amount counts.