VRBO Host Taxes in New Mexico - 2026 Guide

Updated for 2026 (Filing 2025 Taxes)

Tax Basics for VRBO Hosts in New Mexico

The Land of Enchantment welcomes visitors eager to experience its unique culture and stunning landscapes, and many property owners are capitalizing on this tourism through short-term rentals. Revenue generated from platforms like VRBO is considered taxable income, both at the federal level through the IRS and at the state level with the New Mexico Taxation and Revenue Department. Understanding these tax obligations is crucial for compliant and financially sound hosting.

New Mexico State Tax Rules for Rental Income

As a resident of New Mexico, filing a state income tax return is required if your rental income exceeds the standard deduction for your filing status. New Mexico operates on a graduated income tax system, meaning the tax rate increases as your income rises. For the 2025 tax year, New Mexico’s tax rates are expected to remain similar to prior years, ranging from 1.7% to 4.9% (rates are subject to change by the legislature). Rental income is reported as part of your overall adjusted gross income. The primary form used to report self-employment income, including rental income reported on Schedule E, is Form W-4 and Form IT-1040. It's important to note that New Mexico also has a non-refundable tax credit for property taxes paid on your primary residence, which may apply to a portion of the property taxes paid on a rental property if it's also considered your primary residence. Additionally, New Mexico allows for the deduction of business expenses related to your rental activity, mirroring many of the federal deductions. Keep meticulous records of all income and expenses to accurately calculate your state tax liability. Gross receipts tax may also apply to short-term rentals depending on the locality; it is crucial to check with the local municipality for specific requirements. The New Mexico Taxation and Revenue Department provides comprehensive information and resources for taxpayers. You can find more details at https://www.tax.newmexico.gov/.

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

This is the most important tax question for a host, as it determines if you owe self-employment tax.

• 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 your role is primarily that of a landlord, providing a space for rent, Schedule E is likely appropriate.
• Schedule C (Active Business Income): However, if you provide "substantial services" (daily cleaning, meals, concierge services, providing toiletries beyond basic soap), you report on Schedule C and must pay the 15.3% self-employment tax. This is because providing substantial services transforms the rental into an active business.

Top Tax Write-offs for New Mexico Hosts

• Platform Fees: Fees from Airbnb, VRBO, etc., are fully deductible. These are considered expenses incurred to generate rental income.
• Mortgage Interest & Property Taxes: Deduct the portion corresponding to the rental space and period. If the property is used both personally and as a rental, you must allocate these expenses accordingly.
• Repairs, Maintenance & Cleaning: Deduct costs for fixing items, professional cleaning, and supplies. Routine maintenance to keep the property in good working order 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. Often requires a tax professional to calculate correctly. Depreciation allows you to deduct a portion of the property's cost over its useful life.