Airbnb can be a good source of extra income. You can rent out your vacation home when you don’t use it personally or offer your whole apartment or a spare room in your house for short-term stays by listing your property on Airbnb with no hassle. However, starting and running an Airbnb business comes with a list of prerequisites, on top of which is being aware of Airbnb tax rules.
Taxes are an inseparable part of every business, and Airbnb is not an exemption. Tax reporting and paying taxes is one of the most important responsibilities of every property owner or vacation rental manager and should be done cautiously to avoid freaking expensive bills when tax time comes.
Knowing the tax rules can help you keep your rental taxes to a minimum amount or even eliminate your income taxes entirely, helping you earn higher revenue and profits. So, it is on every vacation rental manager to learn the Airbnb tax rules inside out.
Airbnb tax rules are a bit complicated and pretty much depend on the number of days that the property is rented out each year and the amount of time the owner uses the home personally. ‘The 14-day Rule’ of the IRS (The Internal Revenue Service of the United States federal government) is the most primary rule every vacation rental owner must know about and is a good starting point for acquiring further information on tax rules and procedures.
The 14-day Rule
If you personally use your property for a minimum 14 days in a tax year:
If you use your property like a vacation house, apartment or condo as a home and rent it less than 14 days during a calendar year, your property will not be considered a rental. In this case, you are not required to report the rental income and are not allowed to deduct rental expenses from your income.
Moreover, if you use it personally for more than 14 days or more than 10% of the total days it is rented to guests, your income is totally tax-free, and you don’t even have to report the income to the IRS.
Note that allowing other people to stay at your property free of charge, donated stays and charity use, or renting your house for less than the fair rental price should be counted as personal use by you.
This rule applies to both renting out a room in a house or the property as a whole.
Your rental-related costs should be divided up between the time the property is used for personal purposes and the time it is rented to guests.
If you never use your property personally:
If you or your family and friends do not personally use your property during a tax year, it will be classified as a rental property, and its expenses are fully deductible from your rental income. However, there are some strict limitations which determine the allowable rental fees that can be deducted.
Reporting Airbnb Income Tax
Your short-term rental income should be reported as a part of your total income to the IRS, and your tax is determined as a percentage of your total income. Your taxable rental income is the gross amount of rent you receive minus your allowed deductible expenses; in other words, it is your rental income after all deductions—the lower your taxable income, the less your tax bill will be.
It is of great importance to keep records for everything you do regarding your rental room or property. You must carefully keep a record of the occupancy days, and mark them as business or personal use. Also save receipts and notes of both your one-time expenses, as well as the recurring ones like utility bills, insurance, housekeeping, repairs, mortgage, depreciation, Airbnb commissions and advertisement.
Remember that occupancy calendars are great solutions that can help save the dates you have rented out your property or used it for personal purposes.
Income Tax Reporting by Airbnb
Airbnb is classified as a payment settlement entity and can report your income to the IRS depending on your account status and the taxpayer information you’ve submitted, in case you earn more than $20,000 and have more than 200 reservations in a year and send you a 1099-K tax form.
You can rent out your property on Airbnb both as a second home or a full-time rental. Staying on top of Airbnb tax rules and requirements can help you determine the best approach to rent out your vacation home. Moreover, as Airbnb tax rules vary in different countries, states or cities and might change over time, you must check laws frequently to stay up-to-date with the latest regulations and avoid tax confusions and complications.
In addition, we suggest that you consult a tax professional for assistance with reporting and handling the paperwork of your income and more advice on other types of taxes you must pay as a short-term rental host like occupancy taxes, self-employment taxes, property taxes and VAT/GST.