VRBO Host Taxes in San Diego, California - 2026

Updated for 2026 (Filing 2025 Taxes)

Tax Basics for VRBO Hosts in San Diego, California

With San Diego’s consistently high tourism rates and beautiful coastal properties, operating a VRBO can be a lucrative venture. However, rental income generated through platforms like VRBO is subject to both federal and California state taxes, requiring careful record-keeping and understanding of applicable regulations.

California State Tax Rules for Rental Income

As a resident of California, a state income tax return is required even if your federal Adjusted Gross Income (AGI) is zero. California operates on a graduated tax system, meaning the tax rate increases as your income increases. For the 2025 tax year (filed in 2026), understanding these rates is crucial. California’s Franchise Tax Board (FTB) is the primary governing body for state taxes. You will primarily use Form 540 to report your income and deductions. Rental income reported on your federal Schedule E will also need to be reported on your California Form 540.

California specifically addresses short-term rentals through various regulations, and while these don't directly impact state income tax calculation, they can influence your ability to legally operate and therefore generate income. San Diego, in particular, has specific rules regarding Transient Occupancy Tax (TOT), often referred to as a “hotel tax,” which is collected from guests and remitted to the city. Failure to comply with TOT regulations can result in penalties, impacting your overall profitability. Furthermore, consider the impact of parking availability in popular San Diego neighborhoods – costs associated with providing guest parking (if applicable) may be deductible. The demand for VRBOs in areas like Pacific Beach, La Jolla, and Coronado fluctuates seasonally, so accurate income tracking throughout the year is essential for accurate tax reporting. It's important to note that California does not offer a standard deduction equivalent to the federal standard deduction; instead, it offers a fixed amount that changes annually. Consult the FTB website for the most up-to-date information on deductions and tax rates: California Franchise Tax Board.

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 if you owe self-employment tax.

• Schedule E (Passive Rental Income): Most casual hosts report on Schedule E (Passive Income) and are exempt from Self-Employment Tax. This applies if you only provide basic lodging and cleaning between guests. Think of it as simply renting out a space.
• Schedule C (Active Business Income): However, if you provide "substantial services" (daily cleaning, meals, concierge services, providing toiletries beyond basic soap/shampoo), you report on Schedule C and must pay the 15.3% self-employment tax. This is because the IRS considers this an active business.

Top Tax Write-offs for San Diego, California Hosts

• Platform Fees: Fees from Airbnb, VRBO, etc., are fully deductible.
• Mortgage Interest & Property Taxes: Deduct the portion corresponding to the rental space and period. 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 (leaky faucets, broken appliances), professional cleaning, and supplies. Routine maintenance is deductible; improvements that increase the property's value are depreciated.
• Depreciation: A powerful but complex deduction for wear and tear on your property. Often requires a tax professional to calculate correctly. This applies to the building itself and certain furnishings.