Accounting for short term rentals in REI Hub

Rental property investing has always been popular, but the emergence of short-term rentals over the last 10+ years has supercharged and changed the industry in ways we are still learning.

More importantly, it has also impacted how we keep the books for these investments! Generally speaking, short-term rentals provide greater cash flow, which means more deposits, expenses, and bookkeeping work. That's where REI Hub comes in!

Keeping the books for short-term and long-term rentals isn't that different beyond the difference in transaction volume. In both cases, you categorize your transactions by type (expense, revenue, loan payment, etc.), property (and unit if applicable), and account (Supplies or Repair expense). But there are still some nuances to consider.

In this guide, we will discuss and provide resources on how to set up and keep the books for a short-term or vacation rental in REI Hub.

Initial Setup

First things first: Get oriented in REI Hub and set up the fundamentals of your short-term rentals.

While clicking through the system and using it for your rental business are great ways to get familiar with REI Hub, we still recommend you read through our Overview and Getting Started Guide . It provides a summary of REI Hub's component parts and concepts and links to more detailed resources (many of which are also included below).

Ensure your short-term rentals are created as properties in the REI Hub system. If you utilize a dedicated rental business operating account (or multiple accounts), link them to securely import transactions automatically. Alternatively, you can use manual accounts and either upload transactions or enter them manually. If your properties are financed, add the loans and fill out the loan payment template from the Loans page.

Booking short-term revenue from the Import Feed

After you link your operating bank account (or upload transactions), you will have deposits in your import feed from your short-term rental platform of choice. These deposits often include revenue (rent) and expenses charged by the platform (commissions or management fees).

Using the Net Income transaction type

Use the net income transaction type to account for transactions comprised of revenues and expenses most easily. Net Income transactions are useful for both short—and long-term rentals.

The IRS requires that real estate investors report their gross income and expenses, not just the net revenue received after expenses. If you book a deposit that includes revenues and expenses as just a smaller amount of revenue, your taxable income may technically be the same, but the IRS will not be pleased with how you arrived at that number.

Default Airbnb net income rule

The REI Hub system contains a default matching rule for Airbnb deposits. This rule automatically calculates the standard 3% fee that Airbnb charges hosts and books the deposit as a Net Income transaction with the Airbnb fee as a Commission expense.

Airbnb is not the only short-term rental platform that charges a fee, but it is the most consistent in the amount and application of said fee, which is why REI Hub has a rule in place for Airbnb but not others. For Booking.com, Hostaway, and others, you may need to consult the platform payout records to see the exact amount of fees.

Split the deposit by property contribution

If the deposit from your short-term rental platform includes funds from multiple rental properties, you can split the imported transaction into the net amount per property. Any given transaction can only be associated with one property (or no properties, as for portfolio-level transactions), so to touch multiple properties, we need multiple transactions.

Splitting the original deposit transaction (parent) from the Import Feed creates additional transactions (children) in the amount you designate with 'split' appended to the description. Each child transaction can now be booked as a Net Income to the appropriate property.

The per-property net amount can be found in your short-term rental platform's payout report.

Booking short-term rental revenue using Property Manager accounts

The above process follows the default, bank account-centric path for booking deposits from short-term rental platforms into the component revenues and expenses by property. However, as you have more properties active on a given platform, splitting the transaction on the import feed into more and more pieces may make you desire an alternative approach. The other option is to set up your short-term rental platform(s) as a Property Manager account in REI Hub.

For Airbnb and VRBO, please read this guide to learn how to upload your completed CSV payout statement to streamline the process.

For all other short-term rental platforms, please read on.

When you use a Property Manager account, you book the property by property revenues and expenses (or Net Incomes) directly to the Property Manager account, where they are recognized for tax purposes. The associated payouts or net deposits from your short-term rental platform (represented by the Property Manager account) are then booked as 'Transfer between Accounts' transactions.

This reflects the real-world flow of funds from the guests paying the rent to the short-term rental platform, which aggregates it and charges you fees before transferring the remainder to you. You will see the same thing on your Balance Sheet- when entering your rents, you will see the STR platform Property Manager account balance increase and decrease when you book the transfer into your bank account.

Practically, this method means you never have to split the deposit in the Import Feed. You still need to enter property-by-property information from your short-term rental platform payout statement, but not having to pre-split an aggregated multi-property deposit into multiple specific pieces can be a time saver!

When using this method, you will book ALL deposits from your STR platform as a Transfer between Accounts.

You will enter the property-by-property information by navigating to the Property Manager account for your STR platform and manually entering the revenues, expenses, or net incomes by property.

Remember- you don't want to mix the two methods discussed above for booking deposits from your STR platform.

Short-term rental expenses

Entering in the expenses associated with operating your short-term rental business is straightforward and the same for long and short-term rentals, even if the number and nature of those expenses are slightly different.

Using the Import Feed and Transaction Matching Rules

If you have linked your operating bank accounts, as is highly recommended, you will book most of your expenses off the Import Feed. Even if you don't link an account, you can upload Excel transactions to take advantage of the Import Feed.

Use Transaction Matching Rules to automatically recognize or book imported transactions based on their description or amount. This is a great fit for simple expense transactions and helps make the system work for you!

Default expense accounts match the IRS Schedule E

REI Hub comes pre-loaded with a Chart of Accounts focused on rental property investors. The default expense accounts match the IRS Schedule E, meaning the shortest possible distance between keeping your books and being ready for tax time.

The Schedule E is part of the 1040 personal return, where investors report income and expenses from their passive investments (e.g. rental property). Investors report both long-term and short-terms on the Schedule E. If you provide substantial additional services - such as being a true bed and breakfast - you are probably a Schedule C filer instead.

Having the default expense categories match the Schedule E is quite convenient, but sometimes, you may want more granularity and business intelligence than those 15 default accounts provide. REI Hub allows you to easily update your Chart of Accounts and add new accounts or subaccounts based on your needs.

Portfolio level expenses

In addition to booking transactions directly to properties and units, REI Hub also allows you to book transactions to the Portfolio level of your account. This is a great way to easily track expenses that apply to all your properties without splitting the transaction into multiple pieces.

At tax time, our Schedule E report has a handy feature that allows you to prorate portfolio-level expenses across all your properties. So, you can still show your numbers on a property-by-property basis without worrying about manually splitting that type of expense.

Fixed Assets and Capital Expenditures

In addition to the standard expenses discussed above, REI Hub can help you track your fixed assets (capital expenditures) . These costs are recovered over time via depreciation rather than being expensed against income.

Short-term rental property investors should be familiar with a few key fixed assets/ capital expenditures, even if they work with a CPA at tax time.

The rental property

First and foremost is the rental property — generally your largest fixed asset and therefore the source of your largest depreciation entry. The initial fixed asset balances (and the journal entry that sets them) are derived from the property purchase closing statement for recent purchases.

Here is a general discussion of that process and specific instructions for how to do it in REI Hub .

If you want to enter property basis information for past property purchases, the process is simpler; you just need to enter opening balances into REI Hub.

Startup costs

In addition to the property itself, the IRS generally considers the initial outfitting of the rental as part of your investment and, therefore, a fixed asset. Startup costs are unique because if incurred prior to placing the property in service (listing it for rent), they can be included with the property's fixed asset rather than needing to be tracked separately.

So, if you purchase a property and remodel it—or even just paint and furnish it—all of those initial startup costs should be booked as Fixed Asset Purchases that increase the property's initial depreciable basis. Startup costs prior to placing the property in service can't be operational expenses because the IRS doesn't consider your rental business to have begun until the property is listed for rent.

For startup costs and property improvements, select the Fixed Asset Purchase transaction template in the Import Feed (below).

Property improvements

The IRS considers costs from maintaining and repairing your rental property expenses but costs from improving that property to be fixed assets. Spend $25 at Lowe's to fix a leaky toilet? That's a repair expense.

But if you remodel the whole bathroom, that's a capital expenditure. You should create a new fixed asset for it and then book those costs with the Fixed Asset Purchase transaction template. You can add depreciation and track and view your assets on the Fixed Asset Schedule.

The de minimus safe harbor election

As discussed above, the IRS primarily looks at the purpose of an expenditure to determine if it should be expensed or capitalized. They also consider one additional factor- materiality.

The IRS offers the de minimus safe harbor election, which allows you to expense what would typically be a fixed asset if the individual line item is under $2500. Essentially, the IRS doesn't want to deal with a $900 appliance being depreciated over five years.

This is a great topic to discuss with your tax preparer.

Occupancy or Sales and Use tax

Some short-term rental owners also need to account specifically for occupancy or sales and use taxes. This is largely location—and platform-dependent—some municipalities have specific requirements, and some direct booking platforms do not automatically handle taxes on your behalf.

Most vacation rental investors will not need to account for this, as Airbnb, VRBO, and other large platforms generally collect and remit occupancy taxes on your behalf.

These pass-through taxes can be handled in REI Hub with a special liability account and the Net Income transaction template.

To create the liability account, navigate to the Chart of Accounts page and click Add Account. Name the account, choose Liability as the type, and uncheck the 'this is a subaccount' box. An account sub-type menu will appear; select 'Sales and Use Tax' from the options.

You can now select the newly created liability account as a line item in the Revenues section of a Net Income transaction. The tax collected will not be recorded as revenue—it will be held on your Balance Sheet in that liability account until you remit the taxes, at which point you will relieve that account. Do so with a transfer between accounts transaction (this is not an expense as the taxes were not recorded as revenues).

Reach out to us with any questions!

Do you still have questions about how to best account for your short-term rental properties? We are happy to chat! Email us at support@reihub.net, call us during business hours at 888-939-6865, or click here to schedule a conversation in the future!