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Owning a short-term vacation rental in the Texas Hill Country can be both rewarding and profitable — but it also comes with financial responsibilities. Understanding your rental property tax deductions is one of the smartest ways to protect your profits and keep more of your hard-earned income.
Whether your home is tucked along the Blanco River in Wimberley, near wineries in Driftwood, overlooking Canyon Lake, or close to wedding venues in Dripping Springs, knowing which deductions apply to you can make a big difference come tax season.
Let’s walk through the most common deductions available to vacation rental homeowners — and how they can help you build long-term success.
The costs of running a short-term rental — from maintenance and cleaning to marketing and utilities — can add up quickly. Fortunately, the IRS allows homeowners to deduct a wide range of ordinary and necessary expenses related to operating their rental property.
By understanding and using these deductions properly, you can reduce your taxable income, increase your profit margins, and reinvest more back into your home or guest experience.
One of the most powerful tools in your tax strategy is depreciation — the gradual deduction of your property’s value over time. The IRS allows you to depreciate the structure of your home (not the land) over 27.5 years for residential rentals.
That means you can claim a portion of your property’s value — along with major improvements like new roofing, HVAC systems, or appliances — as a deduction each year.
Tip:
Keep records of any capital improvements. These qualify for depreciation and can substantially reduce your taxable income over time.
If you work with a professional vacation rental management company like Hearth & Haven to handle bookings, cleaning, maintenance, and guest support, management fees are fully deductible as a business expense.
You can also deduct any related professional services — including accounting, legal, or marketing costs.
Keeping accurate records of invoices and payments makes this deduction easy to claim.
If your Hill Country home is financed through a mortgage, the interest you pay is deductible. This often represents one of the largest single deductions for property owners.
Additionally, the property taxes you pay each year can also be deducted. For most homeowners, these two line items form the foundation of their annual tax strategy.
Routine maintenance and necessary repairs — from replacing an AC filter to fixing a leaky faucet — are deductible operating expenses.
It’s important, however, to distinguish between repairs and improvements:
Repairs restore a home to its original condition and are deductible right away.
Improvements add value or extend a home’s life and must be depreciated over time (for example, adding a deck, upgrading kitchen counters, or replacing a roof).
Tip:
Only deduct repairs that are ordinary, necessary, and directly tied to maintaining your property for guest use.
To keep your calendar full, you likely invest in marketing — from professional photography and social media ads to premium listings on Airbnb or Vrbo. These advertising expenses are deductible, along with costs for your property website, signage, or promotional materials.
Even small costs, like digital ad campaigns or listing renewals, can add up to meaningful savings at tax time.
If you pay for guest utilities, you can deduct those expenses as part of your operating costs. This includes:
Electricity, water, and gas
Internet or cable service
Trash pickup or security systems
If your home shares a meter or utilities with another residence, you can prorate the amount related to your rental. Always keep invoices and payment receipts.
For homeowners who don’t live near their vacation rental, the IRS allows you to deduct travel expenses directly related to managing or maintaining the property.
That may include mileage, airfare, lodging, and meals — if you’re traveling for business purposes such as inspections, maintenance, or local meetings.
Note: Personal trips don’t qualify. Be sure to separate business-related travel from leisure and document your mileage or receipts carefully.
Insurance is essential to protecting your investment, and your premiums are deductible as long as they cover your rental business.
That includes property insurance, liability coverage, flood or windstorm policies, and even umbrella protection.
If you own multiple rentals in different Hill Country markets, you can deduct insurance costs for each property.
If you manage your vacation rental from a dedicated workspace in your home, you may qualify for a home office deduction.
To claim it, the space must be used exclusively for business — such as managing bookings, coordinating vendors, or accounting.
You can deduct a percentage of your mortgage interest, rent, utilities, and related costs based on the size of the workspace.
Any investment you make in learning how to better manage your property — such as attending real estate or hospitality workshops, buying industry books, or subscribing to professional newsletters — can be deducted as a business education expense.
Knowledge isn’t just valuable — it’s tax-deductible.
Here are a few ways to make sure you’re claiming every eligible expense:
Keep detailed records: Save all invoices, receipts, and service contracts.
Track expenses throughout the year: Don’t wait until tax season to gather your information.
Work with a tax professional: A CPA familiar with short-term rentals can help you identify deductions specific to your market.
Separate personal and business accounts: Keep rental-related income and expenses distinct to simplify tracking and compliance.
Running a vacation rental in the Hill Country can be incredibly rewarding — and managing your finances strategically can make it even more profitable. By taking advantage of available rental property tax deductions, you’ll not only reduce your tax bill but also create more room to reinvest in your home, your guests, and your future growth.
At Hearth & Haven Vacation Rentals, we help homeowners across Dripping Springs, Driftwood, Wimberley, and Canyon Lake protect their investment, improve property performance, and simplify every aspect of vacation rental management — including smart financial practices.
Wondering what your home could make as a vacation rental? Whether you’re a homeowner exploring short-term rental income, an investor analyzing returns, or a real estate agent advising clients, our expert team is here to help.
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