Tax rules for Airbnb rentals

Many people utilize Airbnb to rent out their property as a means of getting some additional income. As with every other source of income, Airbnb rental income is fully taxed. However, there are specific tax rules for Airbnb rentals that you need to know about before filing your tax return. Depending on the situation, you may even need help from professional tax relief advocates when filing your taxes. But for the most part, Airbnb taxes are pretty straightforward. This article will provide you with all the information you need to know about them.

Tax rules for Airbnb rentals

When it comes to tax rules for renting your property through Airbnb, the most important ones that you need to consider are:

  • Income taxes
  • Reporting your income
  • Deductible expenses
  • Occupancy tax
paperwork, representing tax rules for Airbnb rentals
Tax rules for Airbnb rentals are not overly complicated.

If you are renting your property as a part of your business, you may have additional tax breaks available to you. Therefore, you may want to explore various tax reductions for business in order to maximize your tax return. However, the rules for business rentals may get a bit more complicated and it is usually advisable to consult a tax professional. That being said, let’s take a look at general tax rules for Airbnb rentals.

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Income taxes

The first rule states that if you rent your home, apartment, or any other property for more than 14 days in any given year, you are required to pay taxes on the income received. This means that if you happen to be renting your property for less time than that, the income received will be tax-free.

Do note that this income does not include rental income only. It includes all the money you may receive from extra services such as meals, cleaning, and any other additional services you may render to your guests. Some of this income may be subject to other tax benefits, as well. Therefore, you may want to be on the lookout for a few eco-friendly ways to reduce your taxes and maximize your tax return. If your rental property is very popular (meaning it generates significant income), exploring as many tax breaks as you can is in your best interest.

Reporting your income

tax paperwork, symbolizing tax rules for Airbnb rentals
Choosing how to report your taxes may make a large difference.

The first thing you need to know about reporting your rental income is that you need to report it as “gross income”. What this means is that you report the income exactly as you receive it, before taking out any service fees and refunds. This usually amounts to a larger number than the one that Airbnb will pay you but don’t worry. You will get the difference through the deductions on your tax return.

There are two options when it comes to actually report your taxes. You can report them on Schedule E or Schedule C.

Schedule E or schedule C?

No matter whether you choose to report your taxes on Schedule E or Schedule C, you will be able to deduct your rental expenses. The main difference between schedules is that reporting on Schedule C means that you are subject to self-employment tax. Self-employment taxes can be rather complicated but the most important thing to know is that you need to pay them if your rental income exceeds $400 a year. You may still be able to use some of the popular tax deductions on this income, but you will need to calculate your own Social Security and Medicare taxes. Furthermore, Airbnb makes its own tax rates depending on whether you are self-employed or not. The tax rates change every year, as well. Currently, the Airbnb tax rate for self-employment goes up to 15.3%.

With Schedule E, you may be able to avoid paying those pesky self-employment taxes under tax rules for Airbnb rentals. However, to be eligible for Schedule E, you will need not be considered a “real estate professional”. Basically, if your property is generating large amounts of income, you will be considered to run a business and will need to pay self-employment taxes. If your income from your property is low and more passive, you might be able to file on a Schedule E.

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14-day reporting exemption

As mentioned previously, if you rent your Airbnb for less than 14 days in any given year, you will not need to pay any taxes to the IRS. This is referred to as a “Master’s exception”. However, there are a few rules that you might want to know about this exemption. First, the exemption is only applicable if you were using the same property for your own purposes for at least 14 days a year. This means that if you were not present at the property at all throughout the year, you will not be able to benefit from this exemption. Second, this exemption applies to renting out any rooms in your house, as well.

person lounging on a terrace
To qualify for a Master’s exception, you will need to use the property for at least 14 days a year.

Another thing to note is that if you take advantage of this exemption, you may not benefit from any business expenses tax deductions. This does not disallow you from boosting your tax refund amount through mortgage and other property tax deductions, however. You will still be able to rely on those. The last thing that you need to know is that Airbnb itself may report the income to the IRS, as well as issue a tax form that is related to the rental of the property. But if you have rented the property for less than 14 days, you have nothing to worry about.

Deductible expenses

There are numerous deductible expenses under tax rules for Airbnb rentals. For example, you are able to reduce your tax liability by deducting any maintenance and cleaning fees. These fees also include any necessary supplies, as well as laundry. Next, you can deduct any property insurance and PMI (Private Mortgage Insurance) for your Airbnb. Airbnb service fees are also tax-deductible, as are utilities and necessary repairs. Another great way to cut your tax bills is by deducting expenses that you spend on advertising your property. Lastly, you are able to deduct mortgage loan interest, if you have one.

Occupancy tax

Depending on where your Airbnb is located, you may need to collect occupancy tax from the people you rent it to. This tax goes by many names, you may have heard it referred to as “hotel tax”, “lodging tax”, “tourist tax”, or a “room tax”. Some states collect occupancy taxes, some do not. It is very important to understand the different types of taxes in the USA and how they apply to your particular situation. In some areas, you may not even need to deal with the occupancy tax, as Airbnb will take care of it.

Other things you might want to know about Airbnb rentals

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You may want to report your taxes before the IRS sends an audit.

Some people never receive a tax form for their Airbnb taxes. However, this does not mean that the taxes are not due. Airbnb will always report your income to the IRS, meaning that you will need to pay taxes for that income. Failure to do so may prompt the IRS to audit you. Many rental property owners need to resort to seeking last minute tax filing tips due to the fact that they never received a tax form. Try to be proactive and sort your taxes before the IRS sends an audit your way.

Airbnb and withholding taxes

Airbnb has the power to withhold income taxes from the payouts they give you. This amount is currently 30% of all the income, which might be quite a lot more than what you actually might owe to the IRS. However, they can’t do this unless you did not provide them with your correct tax information. Therefore, making sure that all your records are in the right order is in your best interest. But even if Airbnb withholds your taxes, you may still get the money back through a credit on your tax return. That said, the best thing you can do is to file a Form W-9 on your own. That way, you can be sure that your rental income is filed correctly.

Keeping your records

Unless you are taking advantage of the Master’s exception, it is extremely important to keep good records. Throughout the year, your Airbnb will incur plenty of business expenses, most of which you can deduct from your taxes. But to do so, you need to be able to document them all. Some of the expenses that you might want to include are:

  • Cleaning services
  • Maintenance costs
  • Food/Treats
  • Goods that you buy for the rental property

Basically, anything that improves your rental property may be considered a business expense. But you also need to be able to document that expense to get a tax deduction. That is why you might want to be extra diligent when it comes to paperwork, as it will be “making” money for you.

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Tax rules for Airbnb rentals may differ slightly from regular tax rules but they operate under the same premise. If you have any further questions, need any other information, or are looking for top tax relief companies in the country, browse and explore the Consumer Opinion Guide tax relief section. We are here to provide you with an easy way to manage your taxes!

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