Remote Cost Seg

VRBO Host Fees 101: A Complete Breakdown

Benjamin Locke

Author

SUMMARY

VRBO offers property owners a great opportunity to generate significant income, especially when they understand the platform's fee structures and take steps to optimize their earnings. Hosts face costs like service fees, which vary depending on the chosen payment model, and location-based occupancy taxes. By implementing smart pricing tactics, encouraging longer guest stays, and utilizing tax strategies such as cost segregation to accelerate depreciation, hosts can effectively increase their rental income and boost profitability.

When managed effectively, VRBO can be a highly lucrative platform for property owners and landlords. However, achieving success in the vacation rental market requires a thorough understanding of the various fees and charges associated with listing on VRBO. For property owners, mastering these costs and finding ways to reduce them can significantly enhance profitability, allowing them to stay competitive in the fast-paced world of short-term rentals.

What are VRBO host fees?

VRBO host fees are the charges VRBO applies to the host when they rent out their property through the platform. These fees help cover VRBO’s operational costs, including marketing, customer service, and providing insurance options for property owners. Essentially, it’s the price of doing business with VRBO.

How much does VRBO take from host fees?

VRBO offers two different fee structures for hosts: a pay-per-booking fee and an annual subscription model. The choice between these two depends on the host’s business needs and rental frequency.

Pay-per-booking fee structure

With the pay-per-booking model, hosts pay a service fee of 5% on each booking. Additionally, a 3% payment processing fee is charged, bringing the total fee to around 8%. This structure is suitable for hosts who don’t rent out their property often or prefer to avoid a yearly subscription fee. For investors who intend to rent out their property full (or nearly full) time, it is almost always more profitable to choose the annual subscription model.

Calculation Amount ($)
Booking subtotal $1,000
Host fee (5%) $50
Payment processing fee (3%) $30
Host payout (Booking subtotal – Total fees) $920
Total cost to guest (Booking subtotal) $1,000

Annual subscription model

The annual subscription model is ideal for hosts who rent their property frequently. For an upfront fee of $499 per year, hosts can list their property and receive bookings without paying the 5% service fee per reservation. However, the 3% payment processing fee still applies. This model is recommended for hosts who expect to make more than $10,000 annually from their rental property.

Subscription Fee Payment Processing Fee (3%) Host Payout ($1,000 Booking)
$499 per year $30 $970

VRBO cancellation fees for hosts

VRBO encourages hosts to honor their bookings and discourages cancellations through penalties. If a host cancels a booking, VRBO may charge a penalty fee or adjust the host’s visibility on the platform.

  • More than 30 days before check-in: No cancellation fee is charged, but it may affect your rankings.
  • Less than 30 days before check-in: Hosts may face penalties, such as a lower search ranking or temporary suspension of their listing. VRBO may also charge a cancellation fee, which could range from $50 to $200, depending on the frequency of cancellations.

Frequent cancellations can lead to the removal of your listing or prevent you from earning Premier Host status, a designation given to top-rated hosts who consistently provide excellent guest experiences, which can significantly impact your bookings and visibility on the platform.

VRBO taxes: VAT, occupancy, and tourism taxes

Just like Airbnb, VRBO hosts are responsible for understanding and complying with various taxes that apply to their rentals, including VAT, occupancy, and tourism taxes.

VAT

VRBO operates in over 190 countries, with specific tax regulations that vary depending on the region. For example, in many European Union countries, VRBO is required to charge VAT on service fees, typically ranging from 17% to 25%. In other regions, different taxes apply, such as the Japanese Consumption Tax (JCT) in Japan, or the Goods and Services Tax (GST) in Australia and New Zealand. Furthermore, VRBO collects and remits certain local lodging taxes in various jurisdictions based on local laws, which may differ by city or country.

Occupancy and tourism taxes

Many cities and states impose occupancy or tourism taxes on short-term rentals. These taxes are typically added to the booking cost and may be automatically collected by VRBO in some regions. Rates can vary significantly:

City/Location Description Tax Rate
New York City, USA Transient occupancy tax (hotel tax) 14.75% + $3.50/night
Los Angeles, USA Transient occupancy tax 14%
San Francisco, USA Transient occupancy tax 14% + 2.25% Tourism Improvement District assessment

This map provides a comprehensive visual representation of the various taxes that apply to VRBO hosts around the world. It includes value-added tax (VAT), goods and services tax (GST), occupancy, and tourism taxes, which differ by region. Hosts on the VRBO platform face diverse tax obligations based on their property location, with rates ranging from VAT in Europe to occupancy and tourist taxes in North America and Asia. Understanding these tax requirements is crucial for optimizing rental earnings and staying compliant with local regulations.

 

Can VRBO host fees qualify as a tax deduction?

We spoke to Gary Massey, a real estate CPA and owner of Massey and Company CPA, and his thoughts.

Costs associated with listing properties on platforms (like platform fees, advertising, and maintenance costs) can be deducted from rental income. However, if deductions exceed rental income, some taxpayers may be limited in their ability to utilize net losses due to passive activity loss rules.

Gary Massey, CPA

How to reduce VRBO host fees

Just like with Airbnb, there are strategies VRBO hosts can use to minimize fees and increase profitability. Consider the following:

Choose the right fee structure for your needs

Evaluate your rental frequency to decide whether the pay-per-booking or annual subscription model works better for you. If you rent out your property frequently, the annual subscription can save you significant money on service fees.

Optimize pricing to cover service fees

Ensure that your nightly rate accounts for VRBO’s service fees. While staying competitive, hosts can incorporate the fees into their pricing, especially using tools like VRBO’s MarketMaker, which helps adjust rates based on demand and local trends.

Promote longer stays to reduce turnover

Encourage guests to stay longer by offering discounts for weekly or monthly rentals. This reduces the frequency of bookings, helping to lower the total number of times you pay service fees while also reducing property wear and tear.

Maximize direct bookings where possible

While VRBO discourages off-platform bookings, encouraging repeat guests to book directly through your personal website (if applicable) can eliminate platform fees and reduce costs.

Keep cancellations to a minimum

Avoid cancellations to maintain high visibility and eligibility for the Premier Host program, which is being reliable host with minimal cancellations improves your listing’s ranking, reducing the need for constant fee adjustments to boost visibility.

How to maximize your VRBO income with cost segregation

While reducing VRBO host fees can help, one of the most powerful ways to maximize your earnings is by leveraging tax strategies such as cost segregation. Cost segregation allows property owners to accelerate depreciation on their rental property, helping to reduce their taxable income and increase cash flow.

How does cost segregation work?

A cost segregation study breaks down a property into various asset classes (e.g., appliances, fixtures, flooring) and assigns shorter depreciation periods for specific parts of the property, allowing for greater tax deductions in the early years.

Example:
For a $750,000 VRBO property, you could use cost segregation to accelerate the depreciation of certain assets over 5 to 15 years rather than the standard 39 years for short term rental, resulting in greater initial tax savings.

Asset Category Value Depreciation Period Annual Deduction
Appliances, Carpets (5-year assets) $150,000 5 years $30,000
Landscaping, Pavement (15-year assets) $75,000 15 years $5,000
Building Structure (39-year assets) $525,000 39 years $13,461.54
Total Annual Depreciation $48,461.54

Example: VRBO in Aspen, Colorado

Imagine you own a $1 million VRBO property in Aspen, Colorado, rented out year-round. This property generates $100,000 in annual rental income. By using cost segregation, you can accelerate the depreciation of certain assets, providing significant tax benefits compared to traditional straight-line depreciation. The following table demonstrates how each method impacts your cash flow and tax liability:

Item Straight-Line Depreciation Cost Segregation
Property Price $1,000,000 $1,000,000
Annual Rental Income $100,000 $100,000
Total Annual Expenses $40,000 $40,000
Net Income (before depreciation) $60,000 $60,000
Annual Depreciation Expense $25,641.03 $270,000 (27% of $1M)
Net Income After Depreciation $34,358.97 -$210,000
Taxable Income (30%) $34,358.97 $0
Taxes Due $10,307.69 $0
After-Tax Income/Cash Flow $49,692.31 $100,000

By using cost segregation, the significant acceleration in depreciation greatly reduces taxable income and increases cash flow.

Now, assume the property owner has an additional $300,000 in annual individual income. The accelerated depreciation from cost segregation significantly reduces taxable income across all sources of income, not just the rental property.

Item Without Cost Segregation With Cost Segregation
Total Individual Income $300,000 $300,000
Net Income After Depreciation $34,358.97 -$210,000
Adjusted Taxable Income $334,358.97 $90,000
Total Taxes Due (30%) $100,307.69 $27,000
After-Tax Income $199,692.31 $273,000

Much like how a net operating loss works in business, you can carry over your reduction in taxable income over future years. Book a consultation with us and we can tell you exactly how it works, by clicking here.

FAQ

How can I increase my VRBO bookings?

To increase your VRBO bookings, focus on presenting your property in the best possible light with high-quality photos and a detailed, appealing description. Competitive pricing is key, so research similar properties in your area and adjust your rates accordingly. Be responsive to inquiries and keep your calendar accurate to build trust with potential guests. Encourage satisfied guests to leave positive reviews, as this can greatly improve your visibility and credibility on the platform.

What should I know about VRBO’s occupancy taxes?

Occupancy taxes are mandatory fees set by local governments and can vary based on the city or state where your property is located. VRBO often collects these taxes automatically, but it’s important to confirm this process and ensure you’re in compliance with local tax laws. Some regions may require hosts to file taxes separately, so it’s crucial to stay informed. Knowing the tax requirements ahead of time will help avoid potential legal issues down the line.

Can VRBO hosts avoid paying service fees?

While it’s impossible to completely avoid VRBO service fees, there are ways to minimize them. One option is selecting the most cost-effective fee structure offered by VRBO, depending on how frequently you rent out your property. You can also encourage longer stays, as this can reduce the total number of bookings and associated fees. Additionally, building relationships with repeat guests and encouraging direct bookings can help avoid some service fees in the future.

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