VRBO Host Taxes in Arizona - 2026 Guide

Updated for 2026 (Filing 2025 Taxes)

Tax Basics for VRBO Hosts in Arizona

Arizona’s stunning landscapes and vibrant cities make it a premier destination for travelers, creating lucrative opportunities for VRBO hosts. However, alongside the income comes the responsibility of understanding and fulfilling tax obligations. Rental income generated through platforms like VRBO is generally taxable at both the federal and Arizona state levels. Careful record-keeping and understanding applicable deductions are crucial for maximizing profitability and ensuring compliance.

Arizona State Tax Rules for Rental Income

As a resident of Arizona earning income from a VRBO property, filing a state income tax return is required, even if no federal tax is due. Arizona operates under a flat income tax system, meaning all income is taxed at the same rate. For the 2025 tax year, the flat tax rate is currently 2.5%. This rate is subject to change, so it’s important to verify the current rate when filing. Rental income is reported on Form 540, Arizona Individual Income Tax Return, and typically requires the use of Schedule 1, Additional Arizona Tax Computation – Income Adjustments, to report the rental income and associated expenses.

Arizona also allows for deductions similar to those at the federal level, such as mortgage interest, property taxes, and depreciation. However, it’s important to note that Arizona’s rules regarding depreciation may differ slightly from federal guidelines. Furthermore, Arizona does not automatically conform to all federal tax changes; therefore, staying updated on any specific Arizona Department of Revenue announcements is vital. The state also offers a credit for property taxes paid, which can reduce your overall tax liability. Keep detailed records of all rental-related income and expenses to accurately calculate your Arizona tax obligation. For more information and access to forms, visit the Arizona Department of Revenue website: https://azdor.gov/

The Critical Tax Question: Are You a Business or a Rental?

This is arguably the most important tax question for a VRBO host, as it directly impacts whether self-employment tax is owed. The distinction hinges on the level of services provided to guests.

• Schedule E (Passive Rental Income): Most casual VRBO hosts report their income and expenses on Schedule E (Supplemental Income and Loss). This applies if you primarily provide basic lodging and minimal services, such as cleaning between guests. Reporting on Schedule E generally exempts you from the 15.3% self-employment tax.
• Schedule C (Active Business Income): If you provide “substantial services” to guests – such as daily cleaning, providing meals, or offering concierge-style assistance – the IRS may consider your rental activity an active business. In this case, you must report income and expenses on Schedule C (Profit or Loss from Business) and are subject to the 15.3% self-employment tax (Social Security and Medicare).

Top Tax Write-offs for Arizona Hosts

• Platform Fees: Fees charged by VRBO, Airbnb, and other platforms are fully deductible as business expenses.
• Mortgage Interest & Property Taxes: You can deduct the portion of your mortgage interest and property taxes that corresponds to the percentage of your home used for rental purposes and the number of days it was rented.
• Repairs, Maintenance & Cleaning: Expenses related to maintaining and repairing your rental property, including professional cleaning services and cleaning supplies, are deductible.
• Depreciation: This is a powerful deduction that allows you to recover the cost of your rental property over its useful life. It accounts for the wear and tear on the property. Depreciation calculations can be complex, and consulting a tax professional is often recommended.