How Can You Legally Reduce Taxes Through Airbnb Investment? A CPA’s In-Depth Explanation!

Tax season is approaching. When investing in a short-term rental such as an Airbnb, the right tax strategy can substantially reduce your tax burden and maximize returns.

Tax planning expert Toby Mathis and CPA Kurt Bergfjord explained the tax differences between Airbnb and traditional long-term rentals in detail on YouTube, sharing how special short-term rental tax rules can create greater opportunities for deductions and tax savings.

Let us take a look at what they said.

All content in this article comes from the YouTube channel mentioned above and does not constitute tax advice from Snowball Rentals.

Why can Airbnb qualify for more favorable tax treatment?

Unlike traditional long-term rentals, Airbnb stays typically average fewer than 7 days. For tax purposes, they are therefore closer to an operating business than a passive investment. This distinction has several important effects:

Traditional long-term rental income is generally classified as passive income, with limited deductions, whereas Airbnb short-term rentals are treated as an active business and can qualify for more business deductions.

Like someone running a pizza shop, a short-term rental owner can claim tax deductions for many day-to-day expenses, including property maintenance, furniture purchases, advertising and even communications expenses related to Airbnb operations.

How can Airbnb help reduce taxes on other income?

If you actively manage your Airbnb, you can use the Material Participation rules to treat depreciation and other short-term rental expenses as ordinary business losses that offset other income, such as W-2 wages.

For example, a dentist earning 300,000 a year could significantly reduce their tax burden by investing in an Airbnb and using depreciation strategies to reduce taxable income.

Depreciation is an important tax tool for short-term rental investment. A Cost Segregation Study, in particular, can accelerate depreciation early on and provide substantial first-year deductions.

Understand the IRS Material Participation standards to ensure eligibility for deductions—for example, participating in management for more than 100 hours a year. Spouses can combine their management time, providing greater flexibility.

What other tax advantages can Airbnb offer high earners?

Tax relief is often limited for high earners, but Airbnb short-term rental investment offers a distinctive tax-reduction strategy:

Spouses can combine their management time. Provided both participate in Airbnb operations, they can satisfy Material Participation standards and achieve larger tax deductions.

Airbnb investors can switch freely between short- and long-term rentals, optimizing rental income as market conditions change while retaining tax flexibility.

Through a 1031 Exchange, owners can defer real estate capital gains tax and avoid a substantial tax payment on property appreciation.

How can a corporate structure further reduce taxes?

If you plan to invest in Airbnb for the long term, consider setting up a C Corporation to manage short-term rental properties and obtain additional tax benefits:

A C Corporation can offer more business deductions, such as employee wages and retirement plans, further reducing the company’s tax burden.

By continually purchasing new properties and taking depreciation deductions, you can effectively reduce taxable income from existing properties and optimize taxes over the long term.

Can you still obtain large deductions if you buy at year-end?

Even if you buy an Airbnb in December, you can still claim tax relief for that year as long as it is placed in service before year-end. This means:

As long as the property is made available for short-term rental before year-end, you can receive tax benefits for depreciation, operating expenses and more.

However, guests’ average stays must be fewer than 7 days to qualify for the special short-term rental tax rules.

Summary: How can Airbnb optimize your taxes?

Use Material Participation rules to offset wage income with depreciation and losses from the short-term rental business.

Use accelerated depreciation strategies, such as a Cost Segregation Study, to maximize deductions early on.

Use the flexibility of joint management by spouses to meet IRS deduction eligibility requirements.

Combine this with a 1031 Exchange to defer tax on property appreciation and optimize investment returns.

Set up a C Corporation to obtain more tax benefits and implement a long-term tax-reduction strategy.

If you have other ideas about optimizing taxes, we welcome you to exchange experiences with us!

One final reminder: The 2025 tax filing deadline is April 15. Do not forget to file on time!

If you:

Hope to increase rental income through short-term rentals;

Cannot spare a great deal of time to handle the small details;

Occasionally need to use the home yourself, making it unsuitable to empty out the furniture for a long-term rental;

Then:

Snowball Rentals’ management team is your best choice.

From pre-launch vacation-rental styling, big-data analysis and online marketing to tenant screening, dynamic pricing, customer service and sales, cleaning and repairs, Snowball Rentals provides everything as one complete service for your home.

This Week’s Booking Results

Through long-standing relationships with insurers, assignment companies and technology companies, Snowball Rentals rents homes for medium- and long-term durations at short-term rates, then gives owners a rebate of 5% in management fees to maximize their income.

As the weather gets cooler, Seattle’s short-term rental low season is approaching again.

Short-term rentals in peak season and mid-term rentals in low season: this is the new strategy we have repeatedly emphasized and tried this year! Some recent large bookings have been like a ray of sunshine. Homeowners, let us support one another and face the approaching low season with confidence.

The detached lake-view Sammamish home below can be found on Zillow, where its estimated long-term monthly rent is about $6,299.

With the owner’s trust and support, we carefully furnished the home and immediately began short-term rental operations. Fortunately, because the home’s condition and location are both good, short- and mid-term bookings have continued to come in.

As shown in the booking screenshot below, a guest recently rented this home from February 25 to April 5, a total of 39 nights, at an average monthly rent of $7,765.

In summary, after Snowball Rentals began operating this property, its monthly rental income increased from $6,299 to $7,765, an increase of about 23%.

Securing such a large booking in low season is no easy feat!

As noted above, this 39-night booking runs from February 25 to April 5, covering one month of the short-term rental low season, September through March of the following year. We believe it can perform even better when the peak season arrives!

For homeowners, combining short- and mid-term rentals in this way can earn more in peak season and help them get through low season smoothly. Even if the low-season rental figures look less dramatic, they still outperform long-term rentals and give homeowners a strong sense of financial security.

More importantly, the owner does not have to worry about maintenance or cleaning. When something needs to be discussed with guests, we also help with communication and oversight.

Here, we again thank the owner for placing trust in the Snowball Rentals team!

After nearly two years of Airbnb’s downturn, we at Snowball Rentals hope to help owners make steady progress in low season, navigate the challenges safely and lay a better foundation for next year’s peak season.

Once again, heartfelt thanks to our homeowners for their trust and support. Whether the market is strong or weak, Snowball Rentals will stand with you and look for ways to increase your income!

Some homeowners will surely ask the hard question: was a large booking like this just a stroke of luck? What if the home does not rent? A long-term rental is more stable—even earning less is better than earning nothing!

Our answer is: the outcome depends on what we do.

Vacation-Rental Styling

Competition on Airbnb is becoming increasingly intense. The days of piecing together secondhand furniture, taking phone photos and earning easy money on Airbnb are over. Airbnb hosts have moved toward professional operations.

Careful design and furnishing before launch, followed by professional short-term rental operations, will be the only choice for a rental that continues to generate high income.

Here is another of Snowball Rentals’ core services: vacation-rental styling!

Let us look at the home introduced earlier:

When choosing a short-term rental on Airbnb, would this home’s appearance attract you?

If you would also like to make your home more attractive and earn more rent, please contact us at any time!

We also share practical vacation-rental styling plans and creative ideas to help you achieve more with less spending!

Keep rental income growing!

Referral Rewards

If you are already a Snowball Rentals homeowner, you receive a US$500 referral fee for each referral.

If you are not yet a Snowball Rentals homeowner, you receive a US$250 shopping voucher for each referral.

Snowball Rentals Management

1. Full service — We provide pre-launch rental design, furniture procurement, furnishing, professional photography, online marketing, copywriting, tenant service and sales, cleaning, supply purchasing and property repairs. You only need to be a hands-off owner; we handle the rest.

2. Multi-platform promotion — We promote the home on Airbnb, VRBO, HomeAway and other mainstream platforms for maximum exposure.

3. Dynamic pricing — Using big data, we adjust prices every day according to seasonal demand, holidays, last-minute vacancy offers, weekends and local activities, maximizing the owner’s income.

4. Income-improvement SOP — We follow 44 secrets for maximizing short-term rental income, optimizing each property’s online marketing, on-site operations and other aspects to work toward maximum income.

5. Flexible owner stays — Owners can flexibly choose when to stay themselves. This is especially suitable for owners with multiple residences around the world.

6. Terminate at any time — Management does not require an annual commitment. The owner can end the agreement with one month’s advance notice.

7. Corporate housing — In addition to nightly rentals, we work with insurers and assignment companies to provide executives with hotel-style managed accommodation for stays 30 days or more.

8. Transparent fees — For rentals 30 days or more, we charge 15% of accommodation revenue. For nightly rentals 30 days or less, we charge 20% of accommodation revenue.