What's the Difference Between a Short-Term Rental and a Long-Term Rental for Taxes?

Whether you rent your property short-term or long-term affects how the IRS classifies your rental income and what deductions you can take. Long-term rentals (where tenants stay for 30 days or more at a time) are generally treated as passive income under IRS rules, and you report the income and expenses on Schedule E. Short-term rentals (where guests stay an average of seven days or fewer) may be treated as an active business rather than a passive rental, especially if you provide hotel-like services such as daily cleaning or meals. If your short-term rental is classified as a business, the income is reported on Schedule C and is subject to self-employment tax, but you may also be eligible for the qualified business income deduction. If you use the property personally for more than 14 days or 10% of the rental days, IRS rules limit which expenses you can deduct.