VRBO Host Taxes in Chicago, Illinois - 2026

Updated for 2026 (Filing 2025 Taxes)

Tax Strategies for VRBO Hosts in Chicago, Illinois

Chicago's tourism market is a powerhouse, driven by everything from Lollapalooza and McCormick Place conventions to the steady draw of Wrigleyville and the Magnificent Mile. However, earning significant income as a VRBO host in the Windy City comes with a complex set of tax obligations. Between federal income tax, Illinois' flat tax, and Chicago's specific local ordinances, your profitability depends on how well you navigate your deductions. Don't leave money on the table by overlooking the nuances of the tax code.

Illinois State and Local Tax Obligations

Illinois simplifies things slightly with a flat income tax rate, which is currently 4.95% for the 2025 tax year. This means whether you're hosting a small studio in Logan Square or a luxury penthouse in the Gold Coast, your state tax rate remains the same. You'll generally report this income on Form IL-1040. If you're a resident, all your income is subject to this tax; if you're an out-of-state owner, you'll only owe tax on the income generated by the Chicago property.

Beyond income tax, Chicago hosts must be mindful of the city's specific regulatory environment. The City of Chicago requires short-term rental providers to register and pay a 4% Hotel Accommodation Tax, which is often on top of the standard 17.4% total tax rate for hotel-like stays. While VRBO often collects and remits these occupancy taxes for you, it's your responsibility to ensure compliance with the city's "Shared Housing Provider" license requirements to avoid hefty daily fines. You can find the latest local registration details on the City of Chicago's official website.

The 20% Bonus: Qualified Business Income (QBI) Deduction

One of the most significant tax breaks available to Chicago hosts is the Qualified Business Income (QBI) deduction. Under Section 199A, many hosts can deduct up to 20% of their net rental income right off the top before the income tax rate is even applied. Even if you report your income on Schedule E, you may still qualify if your activity rises to the level of a "trade or business." This effectively lowers your federal tax bill and is one of the most powerful tools in a gig economy professional's arsenal. It's important to keep meticulous records to prove your "business" status if the IRS ever asks for a "Safe Harbor" documentation.

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

How you report your income determines whether you owe an additional 15.3% in self-employment taxes. This is where most hosts get confused.

• Schedule E (Passive Rental Income): Most Chicago hosts fall here. If you provide basic lodging, utilities, and cleaning between guests, you're considered a "passive" landlord. You'll pay income tax, but you'll avoid the 15.3% self-employment tax.
• Schedule C (Active Business Income): If you provide "substantial services" that are primarily for the guest's convenience - such as daily breakfast, guided tours of the Chicago Riverwalk, or daily linen changes while the guest is present - the IRS views you as a hotel operator. This means you'll report on Schedule C and pay the self-employment tax, though it may allow for more aggressive business deductions.

Maximize Your Savings with Our Advanced Calculator

To truly optimize your return, you need to see the data. Use our Advanced Calculator to compare different filing strategies. The calculator now supports two vital comparison tools:

• Standard Mileage vs. Actual Expenses: If you're driving across the city to manage turnovers or pick up supplies, our tool compares the flat per-mile rate against the "Actual Expenses" method, which includes gas, repairs, and vehicle depreciation.
• Depreciation: This is the "silent" deduction. Our calculator helps you estimate the annual depreciation of your property and furniture, which can often turn a cash-positive property into a "paper loss" for tax purposes, significantly lowering your taxable income.
• Home Office Savings: If you use a dedicated portion of your own home to manage your Chicago rentals, our tool helps you calculate the "Simplified" vs. "Actual" expense deduction for your home office.

Top Tax Write-offs for Chicago Hosts

• Platform Fees: The 5% to 8% commission VRBO charges is 100% deductible.
• Winter Maintenance: Chicago winters are brutal. Professional snow removal, salt for the sidewalks, and even emergency furnace repairs are fully deductible expenses.
• City Licensing Fees: Any costs associated with Chicago's short-term rental registration or annual renewals are deductible business costs.
• Utilities and Internet: You can deduct the portion of heat, water, and high-speed Wi-Fi used by your guests. In a city where heating bills can spike in January, this is a major deduction.
• Insurance Premiums: Standard homeowners insurance often doesn't cover short-term rentals. If you've purchased a specific "STR" rider or commercial policy, those premiums are deductible.
• Property Taxes and Interest: While the SALT (State and Local Tax) deduction is limited on personal returns, property taxes allocated to your rental business are fully deductible on your business schedules.