VRBO Host Taxes in Seattle, Washington - 2026

Updated for 2026 (Filing 2025 Taxes)

Tax Strategy for VRBO Hosts in Seattle, Washington

Seattle’s tourism market is thriving, driven by everything from cruise ship departures and the iconic Space Needle to the massive tech presence of Amazon and Microsoft. While this creates a steady stream of guests for your short-term rental, it also brings a complex set of tax obligations. As a Seattle host, you aren't just a property owner: you're a business operator in the eyes of the IRS and the Washington Department of Revenue. This guide breaks down the nuances you need to master for the 2025 tax year.

The Washington Advantage: B&O Tax and No Income Tax

Washington is one of the few states without a personal income tax, which is a major win for your bottom line. However, the state makes up for this through the Business and Occupation (B&O) tax. This is a gross receipts tax, meaning it's calculated on your total revenue before you subtract any expenses. For rental activities, the "Service and Other Activities" rate is typically 0.471%. While many small-scale hosts qualify for the Small Business Tax Credit-which often eliminates the actual tax payment for those making under a certain threshold-you're still required to register your business and file returns even if you owe zero dollars. Don't forget that Seattle also requires a specific Short-Term Rental License, and you must verify that the platform is correctly collecting the 7% Seattle transient occupancy tax on your behalf.

The 20% Bonus: The Qualified Business Income (QBI) Deduction

One of the most powerful tools in your tax arsenal is the Section 199A deduction, commonly known as the QBI deduction. If your VRBO activity rises to the level of a "trade or business," you may be eligible to deduct up to 20% of your net rental income right off the top of your federal tax return. This is a massive "below-the-line" deduction that reduces your taxable income, not just your tax rate. Qualifying for QBI can be complex for casual hosts, but generally, if you're spending at least 250 hours a year on rental activities (including maintenance, guest communication, and check-ins), you may fall under the "Safe Harbor" rules that make this deduction much easier to claim.

Choosing Your Path: Schedule E vs. Schedule C

Deciding how to report your income is the biggest factor in determining your final tax bill. It all comes down to the level of service you provide to your guests.

• Schedule E (Passive Rental): This is the standard path for most hosts. You provide the space, basic utilities, and cleaning between stays. The income is considered "passive," which means you avoid the 15.3% self-employment tax.
• Schedule C (Active Business): If you provide "substantial services" that are primarily for the guest's convenience-such as daily linen changes, providing breakfast, or offering guided city tours-the IRS views you as a hotel or bed and breakfast. While you'll have to pay self-employment tax, this classification can sometimes be beneficial if your rental is running at a loss that you want to use to offset other active income.

Maximize Your Savings with Our Advanced Calculator

To truly optimize your return, you shouldn't guess at your deductions. We recommend using our Advanced Calculator to run different scenarios for your Seattle property. The calculator allows you to compare "Standard Mileage" versus "Actual Expenses" for your vehicle. If you’re driving a fuel-efficient car to your rental for quick repairs, the standard rate (67 cents per mile for 2024) might be best. However, if you're using a heavy-duty truck to haul landscaping materials through Seattle traffic, "Actual Expenses" (including a significant deduction for Depreciation) might save you thousands more. Additionally, our calculator helps you determine if you qualify for a "Home Office" deduction for the dedicated space where you manage your bookings and finances.

Essential Tax Write-offs for the Seattle Market

• Maintenance and Moisture Control: Given Seattle's climate, costs for dehumidifiers, gutter cleaning, and moss removal are essential and fully deductible. Professional deep cleanings to prevent mold are also key expenses.
• Platform and Management Fees: The 3% to 5% commission VRBO takes from your bookings is a direct business expense. If you use a local Seattle property management company, their fees are also deductible.
• Asset Depreciation: This is a non-cash expense that allows you to deduct the cost of the building and its improvements over 27.5 years. You can also use "Bonus Depreciation" or "Section 179" to write off the full cost of furniture, appliances, and smart-home tech (like Keyless entry systems) in the very first year.
• Utilities and Connectivity: High-speed internet is a non-negotiable for Seattle tech workers. You can deduct the portion of your internet, water, and electricity bills that corresponds to the rental use of the property.

Staying compliant in the Emerald City requires diligence, but the tax benefits of short-term rentals are among the best in the gig economy. Always keep digital copies of your receipts and consult with a tax professional to ensure you're capturing every possible cent of the QBI deduction.