1031 Exchange Short-Term Rental Rules: Can You Use an Airbnb or Vrbo?

Short-term rental sites are a great way to earn extra money, and a short-term rental property can qualify for a 1031 exchange and its tax deferral, but only if certain conditions are met.

Short-term rental sites like Airbnb or Vrbo have become a reliable way to earn secondary income. By renting out a second unit, vacation home, or even a spare bedroom on a short-term basis, property owners can earn extra cash while still retaining the ability to employ the space for personal uses when they wish.

The income you can make through short-term rental sites can be substantial. Airbnb had over 275 million users in 2024, with over one billion stays booked in 2025. Average listings in strong markets can earn $37,000-$67,000 per year, with top-performing listings earning six figures. Property owners in cities like Los Angeles, where more temporary rentals are needed to meet the anticipated 320,000 visitors for the 2028 Olympics, have an incredible opportunity to earn substantial income over the next couple years.

Before you convert a space into a short-term rental listing, it’s a good idea to think about the effects it may have when it comes to taxation. If the property was previously used for business, such as a long-term rental or a home office space, it should be eligible for use in a Section 1031 like-kind exchange, in which certain taxes are deferred on a property sale if the proceeds are used to acquire a like-kind property. 1031 exchanges allow property owners to invest more in future properties and grow their net worth substantially before any of the deferred taxes are due, potentially even nullifying taxes if the property is held until death.

Depending on the site you go through, changing your property’s use to short-term stays could invalidate business use. Here’s when short-term rental properties such as an Airbnb or Vrbo listing are eligible for 1031 exchange, when they aren’t, and what you can do to increase the likelihood of successful tax deferral.

Do Airbnb and Vrbo count as a 1031 exchange short-term rental?

One of the key rules of Section 1031 is that the properties being exchanged (both the property you’re selling and the one you’re buying) must be held for business or investment use. Whether you are thinking of exchanging into a property for short-term rental usage (such as a vacation rental) or renting out an existing property on a short-term rental site, you want to make sure this use meets the definition.

When Section 1031 says it applies to properties “held for productive use in a trade or business,” the key word there is “productive.” You may have to provide evidence that the business in question generates actual income. You can’t merely list a home or unit on a short-term rental site at an exorbitant price and hope no one bothers; you also can’t “rent it out” to a family member for nothing and pretend it was employed for a business.

As we explain in our guide to 1031 exchange rental property requirements, rent must be set at fair market value for the area. In addition, rental income must be reported on your taxes, and you need to keep a proper paper trail to demonstrate that the unit really was rented out.

This also means that “home share” sites, where two homeowners stay at one another’s properties for free, would not qualify because no income is generated. The same goes for housesitting sites, where digital nomads watch pets or take care of a home while the owner is away, but pay no actual rent. Below are a few of the most popular sites and whether they would likely qualify:

Utilizing a home share or housesitting site does not mean your property is excluded from being included in an exchange; it simply means that you will also need to rent out the home for a portion of the year to establish business use. It all depends on whether you can prove that the business was legitimate. Tax returns showing the rental income for this business will go a long way toward proving that it was indeed a legitimate enterprise.

How often must a vacation home be rented to qualify for a 1031 exchange?

When you have a long-term tenant, it’s reasonable to expect that your property will be rented continuously, 11 or 12 months out of the year. But a short-term rental may go through busy periods and not-so-busy periods, depending on the season. That’s perfectly acceptable, so long as the property is rented out a minimum amount of time in relation to how much you personally use it.

A good example is a vacation home used in a 1031 exchange. You may use your second home for personal purposes a few weeks out of the year; if you rent it out the rest of the time, it can still be eligible for a 1031 excgange. Rev. Proc. 2008-16 says that for “each of the two 12-month periods immediately preceding the exchange,” the property must be rented for at least 14 days. This is commonly referred to as the 14 day rule for a 1031 exchange.

In addition, your personal use can’t exceed 14 days or 10% of the days it was rented during each 12-month period, whichever is greater. If you calculate how much you used the property and multiply the number of days by ten, you’ll have the number of days it must be rented to fulfill the Safe Harbor guidelines.

Can you rent a room in your main home and still do a 1031 exchange?

Not all short-term rentals are whole properties. Many homeowners rent out a spare bedroom to travelers on Airbnb as a way of making extra cash. The treatment of this scenario is similar to how home offices are treated: if you can prove the space was used exclusively for business, it is eligible for 1031, but only the portion that is business-related.

A person’s main home is eligible for another section of the tax code, Section 121, which allows them to exclude certain income from the sale of a main home. If you sell a primary residence that contained a rental unit, then the portion of the property used for business would be eligible for a 1031 exchange, while the rest of the property would be eligible for the Section 121 exclusion.

You’ll need to carefully document the exact portion of your home that was rented out, and it needs to be used exclusively for business. For example, a basement converted into an apartment with its own entrance, kitchen, and bathroom is easily identifiable as a business portion of the residence. Renting a bedroom and having your tenant use the same kitchen that your family uses doesn’t make that a business kitchen. Depending on your living situation, the 1031-eligible portion may be relatively small.

Combining 1031 exchange with Section 121 can also cause issues with the buyer, as you’ll need to carefully segregate the amounts that apply to the two parts of the property. Part of executing an exchange is properly notifying all parties involved of the exchange and handling all sales proceeds in the correct manner, which is why getting in touch with a QI in advance of your exchange is a wise move.

How long must a property be rented before a 1031 exchange?

Section 1031 contains some hard and fast rules, while other things are left to the discretion of the IRS. Safe Harbor rules for a 1031 exchange, set out in Rev. Proc. 2008-16, are established to help exchangers steer clear of situations that are likely to be scrutinized. To be absolutely sure that your exchange will be ruled valid, it’s generally advised to rent the property for two years before the exchange.

That said, you do not necessarily have to rent your property out for that long. If you have solid documentation to establish business use and have rented the property for a considerable number of days in a single year, your exchange could be accepted. This provides flexibility for those who receive an offer they don’t want to turn down but who haven’t waited two years yet. Providing sufficient evidence can make an exchange possible outside of Safe Harbor rules, but there’s no guarantee.

Choosing a Qualified Intermediary for your 1031 exchange

After the hard work of preparing your unit, listing it, communicating with tenants, changing sheets, logging expenses, and everything else that goes with earning income on a short-term rental site, you don’t want a simple mistake in paperwork to invalidate your 1031 exchange. You need to work with someone who understands the rules and has facilitated exchanges with the types of properties you’re exchanging.

JTC’s 1031 team has decades of experience as a Qualified Intermediary, and has developed a set of best practices that are now used as a standard in the industry for security of funds, regulatory compliance, and transparency for exchangers. When it comes time for your exchange, choose a QI that will take proper care of your funds so you can make the most of your short-term rental 1031 exchange.

Best Practices for 1031 Exchanges