Taxes for Cabin and Short-Term Rental Owners in the Smokies

Tennessee sales tax on short stays

According to the Tennessee Department of Revenue, renting a home, cabin, condo, or room for less than 90 consecutive days is subject to sales tax: the 7% state rate plus the local rate where the property is located.

• What's taxed: the full rental price, including fees a guest must pay to book, such as required cleaning fees, non-refundable pet fees, guest booking fees, and damage protection fees.
• Who collects: the owner, the property management company (if you use one), or the online booking platform. When a platform collects and remits Tennessee sales tax on its bookings, you don't report those bookings on your own sales tax return, but you should keep records showing the platform did.
• Direct bookings: if guests book with you directly, or you sell things like firewood or equipment rentals, you collect and remit the tax yourself.
• Registration: owners and property managers register in the jurisdiction where the property is located.
• Business tax: owners with taxable gross receipts of $100,000 or more in a county or city register for and pay Tennessee business tax; those between $3,000 and $100,000 generally need a minimal activity license from the county (and city, if applicable). Booking platforms don't handle this for you.
• Use tax: furniture and supplies bought from out-of-state sellers that didn't charge Tennessee sales tax may owe use tax.

Sources: TN Revenue SUT-47; TN Revenue SUT-48; TN Revenue: Taxation of Short-Term Rental Units (PDF).

Federal income tax basics

• Schedule E is the usual starting point. Rental income and expenses such as mortgage interest, property taxes, insurance, utilities, repairs, supplies, management fees, platform fees, and depreciation are generally reported on Schedule E.
• Hotel-style services can change the form. If you provide substantial services mainly for guests' convenience, such as regular cleaning during stays, changing linens, or maid service, the IRS says rental income and expenses are reported on Schedule C instead, and self-employment tax may apply.
• Average stay matters. When the average guest stay is 7 days or less, the activity generally isn't treated as a "rental activity" under the passive activity rules. That affects how losses are treated, so it's worth figuring out every year.
• Personal use matters. If you use the property as a residence and rent it for fewer than 15 days during the year, you generally don't report the rental income or deduct rental expenses. More rental days, or more personal days, bring other allocation rules into play.
• Depreciation. The building (not the land) and furnishings are generally depreciated over time, so keep your closing statement and receipts for furniture and improvements.

Sources: IRS Publication 527; IRS Publication 925 (PDF); IRS Topic 415.

Records to keep for each property

• Monthly payout statements from each booking platform and your property manager
• Direct booking records and any sales tax you collected and remitted
• Nights rented, number of stays, and days of personal use
• Closing statement from the purchase, plus improvement and furnishing receipts
• Cleaning, maintenance, hot tub service, pest control, and supply costs
• Mortgage interest (Form 1098), property tax, and insurance