Is it possible to deduct the cost of staying in a short-term rental you rent through a hosting website like Airbnb, VRBO, or HomeAway? Yes, it is. In fact, you can claim a partial deduction even if you take your family with you on the trip. But there are some strict requirements you must meet to satisfy the IRS.
You Must Have a Business
First, you need to have an existing business to deduct business travel expenses. It doesn’t have to be a business you engage in full-time—for example, it can be a sideline or hobby business. But it must be an activity you engage in regularly to make a profit.
Trips you make to investigate a potential new business are not deductible unless you actually start the business. In this event, they are deductible as business start-up expenses. You can deduct up to $5,000 of such expenses the first year you’re in business. But you get no deduction if you never start the business. Thus, for example, you can't deduct a trip to Paris because you're thinking about starting a French restaurant.
If you’re an employee, you can deduct the cost of work-related travel that is not reimbursed by your employer. But this deduction is available only if you itemize your deductions, and it is available only to the extent it exceeds 2% of your adjusted gross income.
Your Travel Must Be for Business
Your trip must be primarily for business for any portion of the expense to be deductible as a business expense. If your trip is primarily a vacation—that is, you spend more than half of your time on personal activities—the entire cost of the trip is a nondeductible personal expense. Examples of acceptable business activities include:
- visiting or working with existing or potential clients or customers
- attending trade shows or conventions, or
- attending professional seminars or business conventions where the agenda is clearly connected to your business.
You Can Deduct Lodging Costs for One
When you travel for business you may take your family with you—and they don’t have to work in your business or engage in business-related activities while at your destination. In short, the are free to have fun while you’re working.
When you do this you’re allowed to deduct your business expenses as if you were traveling alone. You don’t have to reduce your deductions, even if others get a free ride with you. This means that you can deduct the full cost of your lodging expenses at your destination as if paying for one, even if you rent larger, more expensive lodgings for your entire family through a rental service like Airbnb or VRBO.
Example: Yamiko travels from New Orleans to San Francisco for her landscape design business. She takes her husband and young son with her. Instead of renting a hotel room, Yamiko rents a two-bedroom apartment in San Francisco through Airbnb at a cost of $250 per night for her whole family. The cost for a comparable one-bedroom apartment from Airbnb suitable for one would be $200 per night. Yamiko may deduct $200 per night for each day she spends in San Francisco working primarily on business.
When you travel for business, there is no requirement hat you do so as cheaply as possible. You’re free to travel first class and deduct the expense. Thus, you can rent an extremely nice abode at your destination and deduct the cost of a comparable nice place for one. Be sure to keep copies of comparable rental listings showing what the cost of a rental for one would have been.
Only Lodging Expenses for Business Working Days Are Deductible
You can only deduct your lodging expenses at your destination for days you spend primarily on business. Days spent primarily on sightseeing or other non-business activities are not deductible. You can still engage in such activities, you just don’t get to deduct your lodging costs for the days you do them. See the Nolo article Combine Work With Pleasure and Still Deduct Travel Expenses for more on the subject.
All of the following are considered business days:
- Any day in which you work for more than four hours.
- Any day when you must be at a particular place for your business—for example, to attend a business meeting—even if you spend most of the day on personal activities.
- Any day in which you spend more than four hours on business travel—travel time begins when you leave home and ends when you reach your lodgings, or vice versa.
- Any day in which your travel and work time together exceed four hours.
- Any day you are prevented from working because of circumstances beyond your control—for example, a transit strike or terrorist act.
- Any day sandwiched between two workdays if it would have cost more to go home than to stay where you are—this rule can let you count weekends as business days.
Example: Yamiko and her family (from the above example) spend seven days in San Francisco. Yamiko spends four days working primarily on business activities—attending a trade convention and meeting existing and potential clients. She spends the other three days sightseeing with her family. Yamiko may deduct her lodging costs for four nights. That is, she can deduct $800 of the $1,750 she spent on her seven night two-bedroom Aibnb rental.
More on Business Travel Deductions
For articles on related business tax deductions for business travel, see the Travel Deductions section of the Nolo website. Also, see IRS Tax Topic 511-Business Travel Expenses on the IRS website. And for a detailed discussion of business tax deductions, including travel-related deductions, see the Nolo book Deduct It! Lower Your Small Business Taxes.