Asheville’s booming tourism industry makes it an ideal location for short-term rental properties. Platforms like Airbnb and VRBO have given property owners the opportunity to generate significant income, but they also come with unique tax responsibilities. From occupancy taxes to deductible expenses, this guide explains everything Asheville property owners need to know to stay compliant and maximize their tax savings.

1. Understand Asheville’s Occupancy Tax Requirements

If you operate a short-term rental in Asheville, you’re required to collect and remit occupancy taxes.

Local Occupancy Tax Breakdown:

  • 6% Total: This includes 4% for Buncombe County and 2% for the Asheville Tourism Development Authority (TDA).

Pro Tip:
Platforms like Airbnb and VRBO often handle occupancy tax collection and remittance for you, but you’re responsible for ensuring they’re paid correctly.

Example:
An Asheville property rented for $3,000 in a month generated $180 in occupancy taxes. If the platform didn’t remit the taxes, the owner was required to do so directly to Buncombe County.

2. Report Rental Income to the IRS and North Carolina

Income from short-term rentals must be reported on your federal and state tax returns.

What Qualifies as Income?

  • Rental income from Airbnb, VRBO, or direct bookings.
  • Cleaning fees and additional charges paid by guests.

Pro Tip:
Even if you only rent your property part-time, any income earned is taxable unless the property was rented for 14 days or fewer in the year.

Example:
A Buncombe County homeowner rented their property for 100 days in 2024, earning $25,000. This income was subject to both federal taxes and North Carolina’s flat income tax rate of 4.4%.

3. Deduct Expenses to Reduce Taxable Income

Running a short-term rental comes with many expenses that are fully or partially deductible.

Eligible Deductions Include:

  • Utilities: Electricity, water, and internet.
  • Repairs and Maintenance: Fixing a broken air conditioner or repainting the walls.
  • Cleaning Fees: Costs for professional cleaning services between guests.
  • Mortgage Interest and Property Taxes: Prorated based on rental vs. personal use.
  • Depreciation: Deduct a portion of the property’s value over 27.5 years.

Example:
An Asheville property owner incurred $10,000 in expenses, reducing their taxable rental income from $25,000 to $15,000 and saving $4,400 in federal taxes.

4. Track Personal vs. Rental Use

If you use the property for both personal and rental purposes, expenses must be allocated based on the percentage of time the property is rented.

How to Calculate:

  • Days Rented / Total Days Used = Rental Percentage.

Example:
A property rented for 200 days out of the year (365 total days) can claim 55% of eligible expenses as rental deductions.

Pro Tip:
Keep a detailed log of rental and personal use to substantiate your calculations.

5. Pay Self-Employment Tax if You Provide Substantial Services

If you offer services beyond basic accommodations, like providing daily breakfast or cleaning, the IRS may classify your rental income as business income, subjecting it to self-employment tax.

Services That Qualify:

  • Daily housekeeping.
  • Cooking meals for guests.
  • Guided tours or transportation.

Pro Tip:
If your short-term rental generates business income, consider structuring it as an LLC or S Corporation to reduce self-employment taxes.

FAQs About Short-Term Rentals in Asheville

1. Do I need to issue 1099 forms for cleaners or contractors?
Yes, if you pay independent contractors $600 or more in a year, you must issue them a Form 1099-NEC.

2. Are Airbnb service fees deductible?
Yes, service fees paid to Airbnb or VRBO are fully deductible as a rental expense.

3. What happens if I don’t collect or remit occupancy taxes?
Failure to remit occupancy taxes can result in penalties, fines, and back taxes owed to Buncombe County.

Common Tax Mistakes for Asheville Short-Term Rental Hosts

  1. Failing to Track Expenses:
    Many property owners miss deductions because they don’t track their expenses year-round.
    Solution: Use tools like QuickBooks or Expensify to log expenses as they occur.
  2. Misclassifying Income:
    Some hosts mistakenly report rental income as personal income, missing out on eligible deductions.
    Solution: Report all rental income on Schedule E of your federal tax return.
  3. Ignoring Local Regulations:
    Asheville has strict rules on short-term rentals, including zoning restrictions.
    Solution: Review the City of Asheville’s short-term rental policies to ensure compliance.

Checklist for Short-Term Rental Hosts in Asheville

  1. Collect and remit local occupancy taxes (6%).
  2. Report all rental income on your federal and state tax returns.
  3. Track and deduct eligible expenses, including utilities and maintenance.
  4. Allocate expenses based on personal vs. rental use.
  5. Issue 1099 forms for payments to contractors exceeding $600.

Advanced Tips for Asheville Short-Term Rental Hosts

  1. Consider Cost Segregation Studies:
    Accelerate depreciation on specific components of your property, like appliances and furniture, to maximize deductions.
  2. Hire a Property Manager:
    Fees paid to property managers are deductible, and their expertise can ensure compliance with local regulations.
  3. Plan for Occupancy Tax Audits:
    Keep detailed records of all bookings, payments, and tax remittances in case of an audit by Buncombe County.
  4. Invest in Green Upgrades:
    Install energy-efficient appliances or solar panels to reduce operating costs and qualify for federal energy tax credits.

Conclusion:
Short-term rentals in Asheville can be highly profitable, but they require careful tax planning to stay compliant and maximize deductions. Polaris Tax & Accounting is here to help you navigate occupancy taxes, deductions, and reporting requirements.

Contact our Asheville office today to schedule a consultation and ensure your rental business thrives.