Short-term rental hosts are eligible for a variety of tax benefits and deductions. If you want to keep as much of your rental income as possible, you must familiarize yourself with Airbnb taxes. Here are 7 of the most important sharing economy tax tips for Airbnb, VRBO, and HomeAway business owners.
7 Hugely Important Tax Tips & And Tax Advice
1. Some Hosts Are Eligible for Tax-Free Short-Term Rentals
As a host who rents very rarely, you should know that there is an opportunity for you to avoid paying taxes on your short-term rental if you qualify for the 14-day rule.
2. Get Tax Advice
There are a variety of taxes that you may owe on your short-term rental income including, income taxes, Social Security and Medicare taxes, net investment income tax, and local and state occupancy taxes. A qualified tax professional can provide you with relevant advice that applies to your unique situation.
3. Claim Your Business Deductions
As a self-employed business owner and Schedule C filer, you are permitted to deduct expenses related to the operation of your business. Your direct expenses may be deducted in full. However, there are other expenses that must be prorated.
4. Depreciate Your Property
In addition to business expense deductions, as the owner of your property, you can also depreciate the property used in your rental activity. Depreciation allows you to account for the cost of buying or improving your rental property.
5. Reconcile Your Form 1099-K
If you earn over $20,000 in a calendar year and have completed 200 or more transactions, Airbnb and other short-term rental platforms will issue a 1099-K and report your rental income to the IRS. Keep track of your earnings on the platforms to ensure that your tax filings match the numbers that are being reported by the platform to the IRS.
6. Keep Records of Your Property Usage
It is extremely important that you keep a record of all your bookings, as well as, the dates on which your property was not rented out. The dates will not only determine whether you’re eligible for tax-free rental income but it will also determine how much of your property was used in running your short-term rental business for the purpose of calculating your deductions.
7. Keep Your Receipts
Make sure to keep track of your receipts so that you don’t miss out on any potential opportunities to minimize your tax bill.
How Short-Term Rental Hosts Are Taxed
Short-term rental hosts must determine whether they need to file Schedule C or Schedule E in order to report their Airbnb, VRBO, and HomeAway earnings to the IRS. For the majority of short-term rental hosts, their rental income is not considered to be passive income, which means that they are required to file taxes using Schedule C.
Schedule C and Self-Employment Tax
Schedule C is used to report the income earned from a business. In most cases, people who are required to file using Schedule C are also required to pay Self-Employment Tax, including Social Security and Medicare tax. Unlike federal income tax, Self-Employment Tax must be paid on a quarterly or monthly basis depending on your income.
Local and State Occupancy Taxes
Depending on your location, you may owe local and state occupancy taxes in addition to income and self-employment tax. Occupancy tax (also known as lodging tax, a room tax, a sales tax, a tourist tax, or a hotel tax) is generally owed on the price of short-term rental accommodations, as well as, any fees for add-ons, such as cleaning services or extra guests.
These occupancy taxes are typically paid to the short-term rental platform by the guest. However, if the platform does not collect the taxes on your behalf, the responsibility falls on the host.
In some jurisdictions, Airbnb will collect and remit these taxes on your behalf. However, in others, you will be responsible for ensuring that these taxes are paid. To view a complete list of the cities where Airbnb collects occupancy taxes, click here.
For more information on short-term rental taxes, please consult a tax advisor.
More Tax Tips & Related Shared Economy Tax Advice Articles
For more short-term rental business tax tips, check out these articles: