VRBO Host Taxes in Iowa - 2026 Guide

Updated for 2026 (Filing 2025 Taxes)

Tax Basics for VRBO Hosts in Iowa

With Iowa’s scenic landscapes and welcoming communities, short-term rentals are becoming increasingly popular, offering visitors a unique experience beyond traditional hotels. Revenue generated from these rentals, however, is subject to both federal and Iowa state income taxes. Understanding these obligations is crucial for compliant and optimized tax filing for the 2025 tax year.

Iowa State Tax Rules for Rental Income

As a resident of Iowa, a state income tax return is required regardless of the amount of rental income earned. Iowa utilizes a graduated income tax system, meaning the tax rate increases as your income rises. For the 2025 tax year (filing in 2026), Iowa’s tax brackets are expected to be adjusted for inflation, but currently range from 0% to 8.53%. Rental income is reported as part of your overall adjusted gross income. Iowa requires the use of Form 1040-IA, Iowa Individual Income Tax Return, to report your income. Self-employed individuals, including VRBO hosts operating as a business (see section 2), will also need to file Schedule IA 125, Iowa Business Tax Credit, if applicable. Iowa also allows for certain deductions similar to the federal level, such as mortgage interest and property taxes, which can reduce your taxable income. It’s important to maintain accurate records of all rental income and expenses to support your tax filing. Iowa also has specific rules regarding the taxation of local option sales tax on hotel/motel and short-term rentals in certain cities and counties; hosts should verify local requirements. Resources are available through the Iowa Department of Revenue to help navigate these complexities.

You can find more information and forms on the Iowa Department of Revenue website: https://tax.iowa.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 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, your rental income is considered passive, and 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 classifies your rental activity as an active business, and you must pay the 15.3% self-employment tax on your net rental income.

Top Tax Write-offs for Iowa 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 that increase the property's value are generally not deductible immediately but are depreciated.
• Depreciation: A powerful but complex deduction that allows you to deduct a portion of the property's cost each year to account for wear and tear. Depreciation calculations can be intricate, and consulting a tax professional is often recommended.