As a short-term rental host with Airbnb, VRBO or HomeAway, you must learn about the tax issues that come along with it. In most cases, you’ll be required to pay tax on your short-term rental income. As a result, tax planning is a must if you want to minimize your tax bill and also make sure that you are compliant.
Here are the top 3 most insanely important tax tips for Airbnb hosts that all short-term rental hosts should follow.
What Is An Airbnb 1099-K Tax Form?
In order to receive a Form 1099-K from Airbnb, you must have made over $20,000 in earnings and completed over 200 transactions
Form 1099-K, Payment Card and Third Party Network Transactions, is a form used to report payment card and third-party payment network transactions to the IRS. This form is used to help improve voluntary tax compliance.
However, the gross amount that is reported on this form does not include credits, refunds, discounts, and other adjustments. As a result, Form 1099-K should never be used in determining your Airbnb income. Instead, you should rely on your Airbnb dashboard for accurate income reports and reconcile the numbers reported there against your bank account.
Airbnb issues this form to U.S. users typically in late January of each year. A copy of the form is also mailed to the address you supplied when completing the taxpayer information on the platform unless you’ve opted for electronic delivery.
Paying Taxes As An Airbnb Host
Regardless of whether or not your earnings qualify for an issuance of a Form 1099-K, you’ll most likely be required to pay taxes on your Airbnb income. Most Airbnb hosts do not qualify for the 14-day rule, which means that they will need to pay taxes.
The first step to paying Airbnb taxes is to determine which federal, state, and local taxes are applicable to your Airbnb business. For federal taxes, you will need to determine whether you will file Schedule C or Schedule E. If you are a Schedule C filer, may be able to claim certain business expense deductions in order to lower your taxable income. As a Schedule C filer, you’ll also have to pay self-employment taxes including Social Security and Medicare tax on a quarterly or monthly basis depending on your income.
Some states and local jurisdictions also impose occupancy taxes, which are also known as transient lodging taxes or hotel taxes. Contact the local government in your area for more information about rules and rates.
What Qualifies As Income? What Deductions Can I Claim?
Taxable income is the gross income that you’ve earned from your short-term rental business and any other sources less any allowable tax deductions. The IRS provides a full list of the types of income which may be subject to federal and state income tax in IRS Publication 525 (Taxable and Nontaxable Income).
You are permitted to deduct all “ordinary and necessary” expenses related to the operation of your short-term rental business. As a result, you can deduct products and services that you’ve purchased, such as cleaning services, household items you’ve purchased for your guests, advertising and marketing expenses, accounting and legal services, mortgage interest, and property taxes. Airbnb, HomeAway, and VRBO service fees charged on your bookings also qualify as deductible business expenses.
The cost of buying or improving a home can be depreciated which means that you are permitted to claim a portion of the cost as a deduction. To be clear, you are only allowed to depreciate your home if you own it. For more information about how to depreciate your home as an Airbnb host, click here.