VRBO Host Taxes in South Dakota - 2026 Guide

Updated for 2026 (Filing 2025 Taxes)

Tax Basics for VRBO Hosts in South Dakota

With the Black Hills drawing tourists year-round and lakes regions bustling in the summer, South Dakota’s vacation rental market is thriving. Revenue generated from platforms like VRBO is considered taxable income, subject to both federal and, potentially, state regulations. Understanding these obligations is crucial for compliant tax filing for the 2025 tax year.

South Dakota State Tax Rules for Rental Income

South Dakota stands out as one of the few states with no state income tax. This means you won’t be filing a state income tax return based on your VRBO income. However, this does not exempt you from federal income tax obligations. The federal government still requires reporting of all rental income, regardless of the state’s tax structure. South Dakota does levy a state sales tax on lodging, which is collected and remitted by the VRBO platform itself in most cases. Hosts should verify their platform’s compliance with South Dakota’s sales tax laws. Furthermore, while there's no state income tax, local option sales taxes may apply in certain cities and counties, impacting the overall cost to renters. It’s important to note that even though South Dakota doesn’t have a state income tax, the IRS still expects full and accurate reporting of all income, and penalties for underreporting can be significant. The state’s focus on tourism means the IRS may pay particular attention to income reported from short-term rentals. For more information on South Dakota’s tax regulations, visit the South Dakota Department of Revenue: https://dor.sd.gov/

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

Determining whether your VRBO activity constitutes a passive rental or an active business is the most important tax decision a host will make. This distinction directly impacts whether you’ll owe self-employment tax.

• Schedule E (Passive Rental Income): The majority of casual VRBO hosts report their income and expenses on Schedule E (Supplemental Income and Loss). If you primarily provide lodging and basic cleaning between guests – think changing linens and wiping down surfaces – you likely qualify for Schedule E reporting. This means you are not subject to the 15.3% self-employment tax.
• Schedule C (Active Business Income): If you provide “substantial services” to guests, such as daily cleaning, providing meals, or offering concierge-style services, the IRS may consider your VRBO activity an active business. In this case, you’ll report income and expenses on Schedule C (Profit or Loss from Business) and will be responsible for paying the 15.3% self-employment tax on your net profits.

Top Tax Write-offs for South Dakota Hosts

Maximizing deductions is key to minimizing your tax liability. Here are some common write-offs available to South Dakota VRBO hosts:

• Platform Fees: All fees charged by VRBO, Airbnb, or 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 percentage of your home used for rental purposes and the number of days it was rented. For example, if your property was rented 50% of the year, you can deduct 50% of these expenses.
• Repairs, Maintenance & Cleaning: Costs associated with maintaining and repairing your rental property, including professional cleaning services and cleaning supplies, are deductible. Remember, repairs are different from improvements; improvements add value to the property and are depreciated, while repairs maintain its current condition.
• Depreciation: This is a powerful deduction that allows you to recover the cost of your rental property (or portions of it) over its useful life. Depreciation calculations can be complex, and it’s often advisable to consult with a tax professional to ensure accurate reporting.