Before you start handing out keys to your home as a host at Airbnb, VRBO, HomeAway, or another home-sharing site, make sure you know how to report and pay income taxes. It's important to know the details because you must separate business and personal use of your home space and determine days used for rentals.
This article will give you an overview of Airbnb taxes including when your host income is taxable, how to take expense deductions, and how to report federal income taxes.
- Airbnb hosts file their tax reports on either Schedule E or Schedule C, depending on whether or not they provide substantial services to guests.
- If you use your home personally, you must separate personal expenses and rental expenses.
- To calculate tax deductions, you must determine what part of your home is for rentals and how many days a year it is used for these rentals.
- If you only have Airbnb guests a few days a year, you don't need to report income, but you don't get to deduct expenses.
How To Determine If Your Airbnb Income Is Taxable
Your Airbnb income isn't taxable if you rent out part of your home for only a few days a year. Rental days are days when someone pays fair market value for the home or the room. The IRS rule says that you don’t have to pay taxes on income received from rentals if:
- You rent your home for no more than 14 days during the year.
- You use the home yourself 14 days or more during the year, or at least 10% of the total days you rent it to others.
The 14-day rule also applies if you just rent out a room or part of the house. If you only have Airbnb guests a few days a year, you don’t have to pay income tax on the money you receive, but you also can’t deduct any expenses as a host.
Renting All vs. Part of Your Home
Your tax situation is different depending on whether you personally use all or part of the home during the year.
If you don't live in the home, you can write off all of the expenses of the property, but only for the days when you rent it at fair market value.
If you rent out only part of the property or you personally use any part of the property, you can only write off the part used for rentals and only for the days you rent it.
Deducting Rental Expenses
To deduct expenses as an Airbnb host, start by dividing your expenses into two categories: direct expenses and indirect expenses.
You can deduct all expenses directly related to your Airbnb hosting such as fees paid to Airbnb, advertising, or local licenses and fees.
You can deduct home expenses, but only for the part of your home used for your Airbnb hosting. Indirect expenses include utilities and internet and depreciation. For example, if you are renting a room, you have to calculate the room space as a percentage of your home space and only deduct that part of your costs.
Some expenses may be either direct or indirect. For example, if you have a cleaning service for just the room you rent out, it's a direct expense. If you hire a cleaning service for your entire home, including the room used for Airbnb guests, it's an indirect expense, and you must calculate the percentage used for rentals.
Reporting Rental Income on Your Tax Return
You must report and pay taxes on your income as a host. The form you use to report Airbnb income and expenses depends on whether you offer substantial services for the convenience of your guests like regular cleaning, changing linens, or serving breakfast.
If you don't perform substantial services, you are considered to be in the real estate rental business, and you report income and expenses on Schedule E - Supplemental Income and Loss.
If you provide substantial services to your guests, like breakfast or fresh linens every day, everything changes. You are no longer considered to be a landlord; now you are running a service business.
Becoming a service business means:
- All of your income is taxable (no 14-day rule)
- You must now pay self-employment tax (Social Security/Medicare) on that income
- You file your business tax return on Schedule C.
The line between rental income and self-employment income is often difficult to see. Check with your tax professional before you file your Airbnb taxes to confirm your tax classification as a landlord or a business owner.
Income Limits on Deducting Rental Expenses
Another twist to the distinction between Airbnb hosts as landlords or as being in a service business is tax losses.
Renting out property is considered a passive activity even if you actively participate in the business. In this case, you may only be able to deduct expenses up to the amount of your income; in other words, you can't have a loss.
On the other hand, if you run your Airbnb as a service business means that you can take all losses with no limits.
If your losses for a tax year are limited, you may be able to carry over the excess loss to offset income in future tax years.
Frequently Asked Questions (FAQs)
As an Airbnb host, what can I write off?
You can write off all your expenses related to being an Airbnb host, like fees to Airbnb, advertising costs, and legal and professional fees. You may also deduct expenses for use of your home, but only for the days you rented out your home, and only for the part of your home that was rented out at fair market value. Examples of shared business and personal expenses are cleaning and maintenance, utilities, insurance on your home, and property taxes
Are Airbnb hosts considered self-employed?
Someone is considered self-employed if they are in business for themselves. An Airbnb host may be considered self-employed if they are offering substantial services and running the business for profit. If a business owner is self-employed, they may take the full amount of deductions to have a loss, but they are also subject to self-employment tax for Social Security and Medicare.
Will Airbnb send me any forms for my taxes?
Airbnb is required to send you an annual tax report on IRS Form 1099-K if you meet the following criteria:
- You are a U.S citizen, U.S. resident alien, or operating as a U.S. entity
- Your gross payments for the year were over $20,000
- You had more than 200 transactions for the year
You may also receive a 1099-K if you had taxes withheld from your payments or if you operate in Massachusetts or Vermont.
Form 1099-K reports the total amount of payments for the year, month-by-month, and any federal income tax withheld.