Airbnb and Short-Term Rental Taxes: Connecticut and North Carolina Guide

1. The 14-day rule

If you use a place as a home and rent it out for fewer than 15 days during the year, you generally don't report the rental income at all, and you don't deduct rental expenses (IRS Pub 527). Think of renting your house for a big local event weekend. Mortgage interest and property taxes are still deducted on Schedule A as usual. Rent it 15 days or more and all the rent is reportable.

2. Personal-use days and the vacation-home limit

The IRS treats a rental as a home if your personal use is more than the greater of 14 days or 10% of the days rented at a fair price. Personal use includes days used by you, a co-owner or family (unless a family member pays a fair rent and lives there as their main home), anyone paying less than a fair rent, swaps, and donated stays. Days spent mostly on repairs don't count.

• Used as a home: report all rent, split expenses between rental and personal days, and rental expenses can only reduce rental income to zero. The extra carries forward. It isn't treated as a passive activity.
• Not used as a home (personal use within the limit): still split expenses, but a rental loss may be allowed under the passive loss rules.

Our short-term rental day count checker does this math for you.

3. The 7-day average stay rule

Divide total rented nights by the number of stays. If the average stay is 7 days or less, the property isn't a "rental activity" under the passive activity rules (IRS Pub 925). The same applies to an average stay of 30 days or less when you provide significant personal services. This changes how losses work:

• The $25,000 special allowance for rental losses (for owners who actively participate, phasing out between $100,000 and $150,000 of modified AGI) doesn't apply.
• A loss is passive unless you materially participate. If you do, the loss can offset wages and other income. If you don't, it carries forward.

An average stay of 7 days or less does not by itself move you off Schedule E. That depends on services, below.

4. Schedule C or Schedule E, and self-employment tax

Most short-term rentals go on Schedule E, even with professional cleaning between guests, linens, Wi-Fi and utilities. The IRS says you report on Schedule C when you provide substantial services primarily for your guests' convenience, such as regular cleaning or changing linens during a stay, or maid service (Pub 527). Meals, tours and concierge-style services point the same way.

5. Material participation basics

There are seven IRS tests. The ones that fit most hosts are:

1. You (with your spouse) work 500 hours or more on the activity during the year.
2. Your work is substantially all the work done on it by anyone.
3. You work more than 100 hours and no one else works more, including cleaners, a co-host or a property manager.

Keep a dated log: guest messages, cleaning, restocking, repairs you do yourself, bookkeeping. Investor-type time, like reviewing statements, generally doesn't count.

6. Connecticut: room occupancy tax

• Short-term rentals of a furnished home (all or part) are subject to Connecticut's 15% room occupancy tax (11% for bed and breakfasts) for the first 30 consecutive days of a stay. Contracts of 90 days or more aren't taxed.
• Who collects: since October 1, 2019, large booking platforms ("short-term rental facilitators") must collect and pay the tax on stays they book. Airbnb's help center says it collects the 15% tax on Connecticut listings.
• Direct bookings (your own website, repeat guests paying you directly): register with CT DRS through myconneCT ($100 registration fee if you aren't already registered for sales tax), collect the tax, and file Form OP-210 by the last day of the month after each period. If you rent only through platforms that collect, you don't need to register.
• Your town may have its own registration or permit rules for short-term rentals. Check with the town before you list.

7. North Carolina: sales tax plus local occupancy tax (Wilmington and Leland)

In North Carolina, rentals of accommodations (including a home or cottage) for less than 90 days are subject to the state 4.75% sales tax, the county's local sales tax, and any local occupancy tax. Cleaning fees and most other fees count as part of the taxable rent (NCDOR).

• Who collects: North Carolina treats platforms like Airbnb as accommodation facilitators. Airbnb's help center says it collects the state and local sales tax and all locally imposed occupancy taxes on North Carolina bookings under 90 nights.
• Direct bookings or a rental agent: you (or your agent) collect the taxes, file sales tax with NCDOR on Form E-500, and file the local occupancy tax return. New Hanover County requires monthly occupancy tax reports by the 20th of the following month.
• North Carolina also taxes your rental profit through the individual income tax, a flat 3.99% for 2026.

8. Form 1099-K from Airbnb, Vrbo and other platforms

Platforms must send a Form 1099-K when your payments for the year are over $20,000 and more than 200 transactions (the One, Big, Beautiful Bill restored that threshold). Some platforms send one below that. Either way, all rental income is reportable. The 1099-K shows gross amounts, so reconcile it to your payouts: platform fees, refunds and taxes the platform collected are not extra income.

9. Records to keep

• A calendar of rented, personal-use, vacant and repair days.
• Platform payout reports and annual earnings summaries, plus any 1099-K.
• Receipts for cleaning, supplies, repairs, utilities, insurance, property tax, mortgage interest (Form 1098) and furnishings.
• Purchase records for the property and anything you depreciate, with dates placed in service.
• A time log if you rely on material participation.
• Occupancy and sales tax returns for any direct bookings.

Next: run the day count checker, the cash flow and tax calculator, or the rental depreciation calculator. Furniture and appliances? See the equipment depreciation calculator. All rental tools: Rental and Airbnb taxes.