Want to rent out that spare bedroom? Here is how it may affect your taxes.

Renting out a room in your home has become a common way to make extra money, whether through a platform like Airbnb or a private arrangement. How it is taxed depends on how many days you rent and where the property sits. There is always a federal component, and depending on your state, county, and city, there may be occupancy taxes on top of it.

AirB&B has grown since 2008 from a service primarily for subletting a room to a full service lodging marketplace for short or long term rentals. Embraced at first by younger travelers and students looking to travel on a budget, it is now utilized by adventurers and travelers of all ages and income levels.

If you have seriously considered offering a spare room, a vacation condo or even your own home to short or long term lodgers, there are some tax considerations you should know about.

First understand each municipality, region and state is different in how they view tax collection for lodging.

State and Local Occupancy Taxes

To be sure, a host should become aware not only of state occupancy taxes (and sales taxes) but also of local occupancy taxes. A local bed tax is not subject to state and local sales taxes. It is up to you to determine if your city or region actually requires the taxes to be paid. They are generally owed on short-term lodging nights plus fees for cleaning or extra guests. Many areas of the country have long-term rental exceptions for stays over a certain number of nights. Although the guest may be charged this type of tax on their accommodation, in a similar way that hotels and other inns charge a lodging tax, it is up to the host to report and pay the tax. The tax goes by different names depending on where you are, including transient occupancy tax, hotel tax, and tourist impact tax.

State and Local Taxes Vary by Region

Two hosts renting identical rooms can end up with very different obligations depending on where they live. Let’s compare California and South Carolina to see why.

California has no statewide occupancy tax. Every rate is set at the city or county level, so your obligation can change when you cross a municipal line. Solano County charges 5% on stays of 30 nights or shorter. Los Angeles charges 14% plus a $3.30 per night administrative fee. Santa Monica charges 17% plus $2 a night. Many county rates apply only to unincorporated areas, so a listing inside city limits falls under a separate rate entirely.

South Carolina has a very different structure. The state imposes a 2% accommodations tax on top of the 5% state sales tax, plus any local sales tax the Department of Revenue collects for the county. It applies to sleeping accommodations “rented to guests for less than 90 consecutive days,” which is a much longer window than the 28 to 30 nights common in California. Hosts booking directly need a Retail License, though there’s an exception if you rent for no more than one week each calendar quarter (you still file and pay annually). Returns are due by the 20th of the month after the filing period ends and must be filed electronically.

Your rate, your filing frequency, and whether you need a license all depend on your specific address. Start with your state revenue department, then check the city and county separately. If you book through a platform, find out whether it collects and remits on your behalf, because that varies by jurisdiction too, and anything the platform doesn’t cover stays your responsibility.

What the IRS Expects You to Report

If you are now in the lodging business with your spare room, you may have other concerns including how to report the extra income on your tax return. It’s going to be important to keep good records. The rules shift depending on how many days you rent.

Rent the property fewer than 15 days during the year and use it as a residence yourself, and the IRS says to “don’t report any of the rental income and don’t deduct any expenses.” Neither the income nor the expenses go on your return. To count as a residence, your personal use has to exceed the greater of 14 days or 10% of the days you rented at a fair price. One caveat: platforms may send you a 1099 regardless of how many days you rented, so keep records showing you stayed under the limit.

Cross into 15 days and everything changes, including the income from those first 14 days. Rental income and expenses get reported on Schedule E (Form 1040), and expenses covering the whole property (mortgage interest, insurance, utilities, repairs) have to be split between rental and personal use. Anything spent only on the rented room, like repainting it or buying a bed, is fully deductible. You can divide shared costs by square footage or by room count, and the room method often produces the larger deduction. Losses may be limited under the passive activity and at-risk rules.

Short-term rental activity that operates like a business may also qualify for the 20% pass-through deduction, which the Tax Cuts and Jobs Act created and the One Big Beautiful Bill Act made permanent. More on reporting rental income can be found in our guide for rental property owners.

E-file has put together a tax checklist for hosts who are sharing their homes in this way: https://www.e-file.com/checklists/taxes-home-rentals.php.

Additionally, the IRS has made an effort to educate consumers by developing a Sharing Economy Tax Center. It provides guidance and good information for anyone who is using the Internet and other forms of technology (cell phones, notably) to participate in sharing transactions like car sharing, property rentals and sharing and freelance work. Record keeping, estimated taxes and penalties are explained.

Do your research, understand your liabilities and above all else, keep good records.

Researching your local occupancy taxes takes some work. Filing your return does not have to. E-file.com handles rental income and walks you through the forms so you can file quickly and accurately.

Note: Tax laws may change with little notice. We do our best to keep this information current, but it is provided on an “AS IS” basis. It should not be considered, legal, financial, or other professional guidance. For more, see our terms.