The first thing to do before you start giving out keys to your home as a host of Airbnb, HomeAway, VRBO, or any other home-sharing site, ensure that you have knowledge of how to report and pay income taxes. We advise you to get this knowledge because you have to distinguish business and personal use of your home space and decide the days that it will be used for rentals.
In this article, we will summarize all you need to know about Airbnb taxes including how to know when your host income is taxable, how you can take expense subtractions, and how you can report federal income taxes.
Major points you can takeaway on How to Pay Airbnb Host Taxes
– Hosts of Airbnb, depending on if they provide adequate services to guests file their tax reports on either Schedule E or Schedule C.
- – In a case whereby you use your home personally, you have to distinguish personal expenses from rental expenses.
- – If you must calculate tax subtractions, you have to decide the part of your home that is for rentals and the time duration it is used for this purpose.
- – It is not necessary for you to report income if you only have Airbnb guests a few days a year, but you don't get to deduct expenses.
How can I know if my Airbnb income is taxable?
If you rent out part of your home for only a few days in a year, then, your Airbnb income isn't taxable. Rental days are best described as days when someone can pay fair market value for either the home or room. According to the rules made by the IRS, it is not necessary for you to pay taxes on income gotten from rentals:
- If you rent your home for a time duration of fewer than 2 weeks during the year.
- If you also make use of the home yourself for 2 weeks or more during the year, or a minimum of 10% of the total days you rent it to others.
This is also applicable if you just rent out a room or part of the house. You do not need to pay income tax on the money you receive if you only have Airbnb guests a few days a year, nevertheless, you also cannot subtract any expenses as a host.
A brief description of Renting All vs. Part of Your Home
The tax situation usually differs as a result of if you personally use all or part of the home during the year.
In a situation whereby you do not reside in the home, feel free to write off all of the expenses of the property, however, this is applicable only for the days when it is rented at what seems to be fair market value.
Also, in a case whereby you either use or rent out any part of the property, you can only write off the part used for rentals and only for the days you rent it.
All about subtracting Rental Expenses
As an Airbnb host, if you must subtract expenses, you have to start by sharing your expenses into two classes which are tagged direct expenses and indirect expenses.
All expenses that are connected directly to your Airbnb hosting like fees paid to Airbnb, fees, or local licenses and advertising can be deducted.
The home expenses can be subtracted, but you have the right to do this for the part of your home used for your Airbnb hosting alone and such expenses include depreciation and utilities, and internet. If you are renting a room, for instance, what you should do is to calculate the room space as a percentage of your home space and then subtract that part of your costs.
Furthermore, expenses can either be direct or indirect. Let us say that there is a need for just the room you rent out, this is termed a direct expense but if the cleaning service is for your entire home, the room used for Airbnb guests inclusive, it could be classified as an indirect expense, and you have to calculate the percentage you used for the rentals.
All about reporting rental income on your tax return
As a host, you are saddled with the responsibility of reporting and paying taxes on your income. The form with which you will use to report Airbnb income and expenses is dependent on if you offer tangible services that are convenient for the guests such as routine cleaning, serving breakfast, or changing linens.
If this is not the case with you, you will be categorized to be in the real estate rental business which means that you have to report income and expenses on Schedule E.
Also, you are not categorized as a landlord, instead, you run a service business if you provide tangible services to your guests, such as breakfast or fresh linens every day.
What does becoming a service business mean?
- It means that your entire income is taxable (the 14-day rule is not applicable)
- It means that you must now pay self-employment tax on that income (Social Security/Medicare)
- It means that you have to file your business tax return on Schedule C.
Before you file your Airbnb taxes, we advise that you speak to your tax professional so as to be sure of your tax classification whether it is as a landlord or a business because the line between rental income and self-employment income is most times hard to see.
FREQUENTLY ASK QUESTIONS:
Is there anything I can write off as an Airbnb host, if yes, what is it?
Expenses such as fees to Airbnb, advertising costs, legal and professional fees, and advertising costs or every other expense related to being an Airbnb host can be written off. Moreover, you are free to subtract expenses for the use of your home, though this is only for the days and the part you rented out.
Would you say that Airbnb hosts are self-employed?
A self-employed person is described as one who is in business for themselves. Before an Airbnb host can be said to be self-employed, he/she must be providing tangible services and running the business with the aim of making a profit, and if this is the case, he/she can take the full amount of subtractions to have a loss but is still under the self-employment tax for Social Security and Medicare.
Will I be sent any forms for my taxes by Airbnb?
- You have to be either a citizen of the U.S, a resident alien in the U.S, or operating as a U.S. entity
- The total of your gross payments for the year were more than $20,000
- Your transactions in the year were above 200 transactions
If there were taxes withheld from your payments or operate in either Massachusetts or Vermont, it is possible for you to receive a 1099-K, also, with this form, the details of the total amount of payments for the year, any federal income tax withheld, and month-by-month can be reported.
ARTICLE SOURCES: [bg_collapse view=”button-orange” color=”#4a4949″ expand_text=”Show More” collapse_text=”Show Less” ]
IRS. “Topic No. 415 Renting Residential and Vacation Property.” Accessed Sept. 14, 2021.
IRS. “Publication 527 Residential Rental Property (Including Rental of Vacation Homes),” Page 15. Accessed Sept. 14, 2021.
IRS. “Tips on Rental Real Estate Income, Deductions and Recordkeeping.” Accessed Sept. 14, 2021.
IRS. “Publication 527 Residential Rental Property (Including Rental of Vacation Homes).” Accessed Sept. 14, 2021.
IRS. “Topic No. 425 Passive Activities – Losses and Credits,” Accessed Sept. 14, 2021.
Airbnb. “Should I Expect to Receive a Tax Form from Airbnb?” Accessed Sept. 14, 2021.