6 Tax Deductions for Airbnb Hosts
Are you considering renting out your home via Airbnb for some extra income? If yes, then you might be wondering about its tax implications? Airbnb is a service that lets you offer alternative accommodation to tourists. Read on to find out about the allowable Airbnb tax deductions.
Do I have to pay taxes on Airbnb income?
That depends on the length of the time your property was rented out during the year. You need to be aware of the 14-day rule which is widely known as “Master Exception.”
According to the IRS under this 14-day rule, you are considered to use a dwelling unit as a residence if you use it for more than 14 days or the time period you have stayed in the house should at least be 10% of the total days you have rented it out to the guest at the amount that reflects its intrinsic value. This means you charge a rent that you could reasonably expect to receive from any other individual who is not related to you, for a similar service.
The IRS also recognizes a situation where you have more than one dwelling unit during the tax year. This happens when you live in your primary home for most of the year and spend at least 30 days at your vacation home.
However, if you rent out your vacation home for more than 300 days during a year at a fair rental price then it will be considered a rental property. It will be taxed as rental real estate income tax.
It is important to note that you are responsible to collect the lodging tax that your guest pays. You collect these lodging taxes on behalf of the government and remit them to the IRS. You cannot claim any deductions on these taxes.
Do I get Airbnb tax benefits?
You might have to disclose your tax information to Airbnb if they ask for it.
Unless you give them your correct tax information they will withhold up to 30% tax from your payouts.
Once you provide them with all the information and they determine that no withholding is required they will stop it on your future payouts.
However, what has already been withheld will not be refunded. But you can claim those as a tax credit when you file your taxes with the IRS.
What are the tax deductions for Airbnb hosts?
Suppose you offered your spare rooms for short-term rental for only 14 days or less during the year. The rest of the time you stayed in it. In this case, you don’t need to pay income tax on that rental income and you cannot claim any Airbnb tax deductions for it.
However, if you often rent out a portion of your place on short-term rental marketplaces such as Airbnb then it is very likely that you are treating it as a business. In this instance the IRS allows you to deduct business expenses that are ordinary (i.e. common in your business.) and necessary (i.e. facilitates your business).
While figuring out how to reduce your taxes as the landlord, there can be two situations:
1. You rent out your entire property: In this case, the IRS allows you to deduct expenses in full that are directly attributable to generating your rental income.
2. You rent out a portion of your property: In this case, some of the expenses need to be apportioned.
Following are the allowable Airbnb tax deductions to reduce your taxable income:
- Guest Service Fees. For each reservation, Airbnb charges 3% service fees. You can deduct this host service fee in full.
- Mortgage Interest. You are allowed to deduct mortgage interest and property tax paid for your rental property. These must be apportioned between the personal and rental portions.
- Property Insurance and private mortgage Insurance. Any insurance including private mortgage insurance (PMI) premiums related to your rental property is deductible. In case you pay your PMI premium in advance for multiple periods you can only deduct the amount that belongs to the year for which you are filing your return.
- Cleaning Services, Meal, and Maintenance. When you are the host you are responsible for maintaining the portion you have rented out. You probably provide laundry services as well. You might offer your guest breakfast. The cost of all the services and maintenance along with the necessary supplies may be deductible in full.
- Utilities: (TV, Internet, Gas, Water, Electricity, etc.). Utility expenses are related to the entire property. You have to apportion it between the rented area and the area you use privately.
- Credit card interest. If you used your credit card to pay for your Airbnb business expense you are allowed to deduct the interest charges on it.
This is not an exhaustive list. There are more deductions you can claim based on your particular situation. It is recommended that you take tax advice from a professional to accurately figure out your taxes on Airbnb income.