VRBO Host Taxes in Minnesota - 2026 Guide

Updated for 2026 (Filing 2025 Taxes)

Tax Basics for VRBO Hosts in Minnesota

With the Land of 10,000 Lakes attracting visitors year-round, short-term rentals through platforms like VRBO are becoming increasingly popular in Minnesota. However, this income is subject to both federal and Minnesota state taxes, requiring careful record-keeping and understanding of applicable rules. This guide provides an overview of the tax implications for VRBO hosts in Minnesota for the 2025 tax year.

Minnesota State Tax Rules for Rental Income

As a resident of Minnesota, a state income tax return is required regardless of the amount of VRBO income earned. Minnesota operates on a graduated income tax system, meaning the tax rate increases as your income rises. For the 2025 tax year (filed in 2026), Minnesota residents reporting income from rental properties will primarily utilize Form M1, the Minnesota Individual Income Tax Return, along with Schedule 1, which is used to report additional income and adjustments. Crucially, rental income reported on Schedule E at the federal level will also be reported on Schedule 1 of Form M1. Minnesota also allows for many of the same deductions as the federal government, such as mortgage interest and property taxes, but it’s important to verify specific state limitations. Minnesota does not automatically conform to all federal tax changes; therefore, staying updated on state-specific legislation is vital. The Minnesota Department of Revenue provides detailed information and resources for taxpayers, including guidance on rental income. You can find more information at the Minnesota Department of Revenue website. Remember to accurately report all income and expenses to avoid potential penalties. Furthermore, if your rental activity is considered a business (see section 2), you may be required to make estimated tax payments throughout the year to avoid underpayment penalties.

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 (Supplemental Income and Loss) 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, providing toiletries beyond basic soap, concierge services, etc.), you report on Schedule C (Profit or Loss from Business) and must pay the 15.3% self-employment tax (Social Security and Medicare). This is treated as running a lodging business.

Top Tax Write-offs for Minnesota Hosts

• Platform Fees: Fees from Airbnb, VRBO, and other platforms are fully deductible as business expenses.
• Mortgage Interest & Property Taxes: Deduct the portion of mortgage interest and property taxes that corresponds to the rental space and the period it was rented. If the property is both a personal residence and a rental, allocation is required.
• Repairs, Maintenance & Cleaning: Deduct costs for fixing items (repairs), professional cleaning services, and cleaning supplies. Improvements, which add value or extend the life of the property, are generally depreciated, not deducted immediately.
• Depreciation: A powerful but complex deduction for the wear and tear on your rental 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.