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From historic Beacon Hill brownstones to cozy Cape Cod cottages, Massachusetts welcomes a vibrant short-term rental market. However, generating income through platforms like Airbnb comes with tax obligations at both the federal and Massachusetts state levels. This guide provides an overview of those obligations for the 2025 tax year.
Massachusetts State Tax Rules for Rental Income
As a resident of Massachusetts, you are required to file a state income tax return, even if your only income is from Airbnb hosting. Massachusetts operates under a flat income tax rate, currently 5.0% for the 2025 tax year. This means all income, including rental income, is taxed at this single rate. Self-employed individuals, including Airbnb hosts reporting income on Schedule C, will use Form M-1040, Massachusetts Income Tax Return, along with Schedule E (if reporting passive rental income) or Schedule C (if reporting active business income). It's crucial to accurately report your rental income and expenses to avoid penalties. Massachusetts also requires the payment of estimated taxes quarterly if your tax liability exceeds $1,000. Failure to do so can result in underpayment penalties. The Department of Revenue offers resources and tools to help calculate and pay estimated taxes. Keep meticulous records of all income and expenses related to your Airbnb activity, as these will be essential for accurate tax filing. Furthermore, be aware of any local city or town ordinances regarding short-term rentals, as these may necessitate additional registration or fees that could impact your tax situation. For detailed information and forms, please visit the Massachusetts Department of Revenue: Massachusetts Department of Revenue.
The Critical Tax Question: Are You a Business or a Rental?
This is the most important tax question for an Airbnb 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 (Passive Income) and are exempt from Self-Employment Tax. This applies if you only provide basic lodging and cleaning between guests. Essentially, if you're simply renting out space, you'll likely fall into this category.
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 (Social Security and Medicare). This is treated as running a business, not just renting property.
Top Tax Write-offs for Massachusetts 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 of mortgage interest and property taxes corresponding 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 (leaky faucets, broken appliances), professional cleaning, and cleaning supplies. Routine maintenance is deductible; major improvements that increase the property's value are generally depreciated.
Depreciation: A powerful but complex deduction for wear and tear on your property. It allows you to deduct a portion of the property's cost over its useful life. Often requires a tax professional to calculate correctly.
⚡️ 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