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The Natural State’s booming tourism, fueled by attractions like Hot Springs National Park and the Ozark Mountains, has created a thriving market for short-term rentals. However, income earned through platforms like VRBO is generally taxable at both the federal and Arkansas state levels. Understanding these tax obligations is crucial for compliant and financially sound hosting.
Arkansas State Tax Rules for Rental Income
As a resident of Arkansas, a state income tax return is required regardless of the amount of rental income earned. Arkansas utilizes a graduated income tax system, meaning the tax rate increases as your income rises. For the 2025 tax year, Arkansas income tax rates range from 0% to 4.9% based on taxable income brackets. Rental income is reported on Form AR1040, and individuals operating as sole proprietors or single-member LLCs will typically use Form AR1040-IC to report income and expenses related to their VRBO activity. It’s important to note that Arkansas does not have a specific form dedicated solely to rental income; it’s integrated into the standard individual income tax return and the income reporting form for self-employment. Accurate record-keeping of all rental income and related expenses is vital. Furthermore, Arkansas requires taxpayers to file and pay their state income taxes by the federal filing deadline (typically April 15th), unless an extension is filed. The Arkansas Department of Finance and Administration provides detailed information and resources for taxpayers, including downloadable forms and instructions. You can find more information at Arkansas Department of Finance and Administration. Failure to properly report rental income can result in penalties and interest charges from the state.
The Critical Tax Question: Are You a Business or a Rental?
This is the most important tax question for a VRBO host, as it determines whether you owe self-employment tax. The IRS classifies rental activity based on the level of services provided.
Schedule E (Passive Rental Income): Most casual hosts report on Schedule E (Supplemental Income and Loss). This applies if you primarily provide basic lodging and cleaning between guests. If you fall into this category, you are generally exempt from the 15.3% self-employment tax (Social Security and Medicare).
Schedule C (Active Business Income): However, if you provide "substantial services" – think daily cleaning, providing meals, or offering concierge-style services – you report on Schedule C (Profit or Loss from Business). This triggers the 15.3% self-employment tax on your net rental income.
Top Tax Write-offs for Arkansas Hosts
Platform Fees: Fees charged by Airbnb, VRBO, 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 rental space and the period it was rented. If the property is used for both personal and rental purposes, you must allocate these expenses accordingly.
Repairs, Maintenance & Cleaning: Deduct costs for fixing items (repairs), routine upkeep (maintenance), and professional cleaning services or cleaning supplies. Improvements, which add value to the property, are generally depreciated rather than deducted immediately.
Depreciation: A powerful but complex deduction that allows you to deduct a portion of the cost of your rental property over its useful life. This accounts for the wear and tear on the property. Calculating depreciation can be complicated, and consulting a tax professional is often recommended.
⚡️ Tax Estimator
Estimate your taxes using current IRS rules.
Simplified Method: $5 per sq ft (Max 300 sq ft)
Your Estimated Results:
Net Profit (Taxable Income):$0.00
Federal Self-Employment Tax (15.3%)
Includes 12.4% for Social Security and 2.9% for Medicare.$0.00