VRBO Host Taxes in California - 2026 Guide

Updated for 2026 (Filing 2025 Taxes)

Tax Basics for VRBO Hosts in California

California’s diverse landscapes, from the Redwood forests to the Southern California beaches, make it a premier destination for short-term rentals, but success as a VRBO host also means understanding your tax obligations. Income earned through VRBO and similar platforms is generally taxable at both the federal and California state levels. Proper record-keeping and understanding applicable deductions are crucial for minimizing your tax liability.

California State Tax Rules for Rental Income

As a resident of California, a state income tax return is required even if your federal tax liability is zero. California operates on a graduated income tax system, meaning the tax rate increases as your income rises. For the 2025 tax year (filed in 2026), these rates will likely be adjusted, but understanding the current structure is a good starting point. The primary form for reporting self-employment or business income is Form 540, California Resident Income Tax Return, along with Schedule CA(540), California Adjustments – Residents. Rental income is reported on Schedule E (Federal) which then flows to Form 540. However, if your rental activity is considered a business (see section 2), you will report on Schedule C (Federal) and then transfer the net profit or loss to Form 540. California also requires you to pay estimated taxes quarterly if you expect to owe $1,000 or more in state income tax. Failure to do so can result in penalties. Furthermore, California has specific rules regarding the allocation of expenses between personal and rental use, particularly for properties with mixed use. It’s important to accurately determine the percentage of your property used for rental purposes to claim appropriate deductions. Local occupancy taxes, often levied by cities and counties in California, are not deductible on your state income tax return, but are a separate expense. Resources for California tax information can be found on the Franchise Tax Board (FTB) website: https://www.ftb.ca.gov/

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. The IRS classifies rental activities based on the level of services provided.

• 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. Simply providing a clean and furnished space qualifies as passive rental activity.
• Schedule C (Active Business Income): However, if you provide "substantial services" (daily cleaning, meals, providing toiletries beyond basic soap, concierge services), you report on Schedule C and must pay the 15.3% self-employment tax. This is because the IRS considers this an active business, not just a rental.

Top Tax Write-offs for California Hosts

• Platform Fees: Fees from Airbnb, VRBO, etc., are fully deductible. These are considered expenses directly related to generating rental income.
• Mortgage Interest & Property Taxes: Deduct the portion corresponding to the rental space and period. If the property is used both personally and for rental, you must allocate these expenses accordingly.
• Repairs, Maintenance & Cleaning: Deduct costs for fixing items, 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. Depreciation is calculated over 27.5 years for residential rental property.