Alaska earned its nickname “The Last Frontier” thanks to its vast, untouched landscapes and rich wildlife. From Ketchikan, a charming waterfront adorned with totem poles, to Kodiak, home of the mighty Kodiak bears and a prime spot for viewing the Northern Lights in the fall, Alaska offers a unique allure that has sparked the imagination of artists and tourists alike.

Owning vacation rental properties in Alaska offers short-term rental (STR) owners promising opportunities. Learn how to maximize tax deductions to save the most money during tax season.

What’s considered a short-term rental?

Hosting guests for fewer than 30 days in a row is a short-term rental. Renting in Alaska, primarily through Airbnb and VRBO, requires an Alaska Business License for renting out various spaces like in-law suites or individual rooms. Businesses must register before obtaining their license from the Alaska Business License.

When should I report my rental income for my short-term rental?

Every tax year begins on January 1 and concludes on December 31, with individual tax returns typically due by April 15 in the U.S. Rental income is taxable income.

The Internal Revenue Service (IRS) counts any money earned from a short-term rental as taxable income. If you rent through Airbnb or VRBO, talk to a tax professional to find out if you need to submit a tax form, like a W-9, to them. 

Do I always need to report rental income?

When your guests spend more than 14 days per year in your short-term rental properties, the IRS considers those earnings taxable income, necessitating proper reporting. However, homeowners can claim exceptions, such as mortgage interest and real estate taxes, and retain their deductibility irrespective of rental activity.

How do I report rental income for my short-term rentals?

Use a Schedule E Form 1040 or a Form 1040-SR, specifically designed for individuals aged 65 and older. For a comprehensive overview of the tax reporting procedure, consult our guide on reporting rental income using the Schedule E 1040 Form.

Streamline the reporting of your earnings and business expenses with these simple and efficient steps.

Step 1: Gather the proper forms

It’s essential to have a written record detailing the time invested in repair and maintenance, along with the corresponding costs related to rental activity. Simplify the reporting process by compiling an itemized list of deductions to be included on the 1040 Form.

Step 2: Determine if the structure of your business is active or passive

The difference between passive and active income is distinguished by how involved the property owner is in providing services for the rental property. Passive income involves minimal day-to-day engagement facilitated through online booking platforms like Airbnb and VRBO. In contrast, active income entails a more hands-on approach, where rentals generate income with a significant effort by the short-term rental operator.

Step 3: Reporting rental income with a Schedule E (Form 1040)

When you rent out your vacation home through Airbnb, find out if you need to submit a W-9 Form to Airbnb. Otherwise, Airbnb legally must withhold 28% of your rental money for taxes.

When you report your earnings, whether it’s a passive or active income, use the 1040 Form to itemize your deductible expenses.

Key tax deductions for short-term rentals

Various deductions can impact your tax liabilities. Some potential deductions you can claim on your tax return that are worth highlighting include property taxes, mortgage interest, travel expenses, business activity, routine rental expenses like cleaning and providing meals, and maintenance costs. Business expenses such as property management fees are eligible for deductions.

FAQ: Short-term rental property tax deductions in Alaska