Tax Implications of Owning Short-Term Rentals in California

Why Taxes Matter for Central California Short-Term Rental Investors

When people think about short-term rentals in Oakhurst or Coarsegold, they picture steady income and tourist demand. But many forget about one key part: taxes.

Understanding the tax implications of owning short-term rentals in California is essential. Taxes affect your profits, and mistakes can lead to penalties. With the right plan, though, you can lower costs and protect your income.

Federal and State Income Taxes

First, let’s look at income taxes.

• Federal level: You must report rental income on IRS Schedule E (Supplemental Income and Loss).

• California state level: Rental income is also taxed by the state. Rates range from 1% to over 12%.

The good news? You can deduct many expenses. Mortgage interest, property management fees, utilities, and even depreciation all reduce your taxable income.

👉 Outbound reference: IRS Rental Income and Expenses Guide

Transient Occupancy Tax (TOT): The Local Factor

Another cost investors often overlook is the Transient Occupancy Tax (TOT).

• What it is: A tax charged to guests staying fewer than 30 days.

• How much: In Madera County (Oakhurst, Bass Lake, Coarsegold) the rate is 10%.

• Who pays: Guests pay it, but owners must collect and send it to the county.

If you fail to follow TOT rules, you could face fines or back payments.

👉 Internal link: The Ultimate Guide to Short-Term Rental Regulations in Central California

Self-Employment Tax and Active Management

Next, let’s talk about self-employment tax.

If you actively manage your short-term rental—by handling bookings, cleaning, or guest contact—your income may count as self-employment income. In that case, you may owe a 15.3% self-employment tax.

If you hire a property manager, this may not apply. Still, it’s smart to confirm with a tax advisor.

Depreciation: A Powerful Tax Shield

Depreciation is one of the strongest tools for investors. It reduces your taxable income by accounting for property wear and tear.

• You can depreciate residential rentals over 27.5 years.

• Furniture and appliances may qualify for faster depreciation.

• Keep in mind: when you sell, you may owe recapture taxes.

Capital Gains Taxes on Sale

If you sell your Oakhurst or Coarsegold rental, you’ll likely owe capital gains taxes.

• Short-term (owned less than a year): Taxed as ordinary income.

• Long-term (owned more than a year): Taxed at 0–20% depending on your income.

Many investors use a 1031 Exchange to delay these taxes by buying another property.

👉 Outbound reference: IRS 1031 Exchange Rules

Common Deductions for Short-Term Rental Owners

Here’s a list of common deductions for Central California rental owners:

• Mortgage interest

• Property taxes

• Utilities (water, gas, electricity, internet)

• Insurance

• Cleaning and repairs

• Property management fees

• Marketing costs

• Travel related to property oversight

💡 Tip: Keep all receipts and records. The IRS requires proof of every deduction.

Putting It All Together

Owning a short-term rental in Central California can be profitable. But success depends on planning for taxes. From TOT and income taxes to depreciation and capital gains, you need a clear strategy.

With the right tax approach, you’ll keep more of your earnings. Work with experts, track your expenses, and use deductions wisely. That way, your Oakhurst or Coarsegold property works harder for you.