How does an Airbnb host deal with taxes?
When you become an Airbnb host, the days of throwing together your taxes at 11 pm on April 14th are over. I would recommend finding an experienced accountant to help you with this, especially if this is your first year. Taxes for Airbnb hosts are complicated, and I always get asked questions about them. In this article, you will learn whether you should file on a schedule E or C (and what the difference is), what you can deduct from your taxes, and some tips on how to make filing your taxes as an Airbnb host easier.
*****Disclaimer…I am not an accountant, or a lawyer. All of this information is just from my personal experience and for entertainment value only 🙂
15 day rule
If you rent out your property for 14 days or less, then you do not have to pay any taxes on it. It is a trade off, though. By choosing to not report the income, you are forfeiting the right to claim the deductions. If you are reading this blog, though, chances are that you rent out your property longer than 15 days.
Filing Federal Taxes
*Check with your accountant to see if you need to file anything quarterly*
Schedule E vs Schedule C for Airbnb hosts
You will need to choose whether to file under Schedule E or Schedule C. This depends on two things: how passive is your role in the business, and what is your average length of stay?
Schedule E is for passive income, which means that although you profit from your Airbnbs, you don’t do any of the work yourself (think E = easy!). You have a manager, cleaner, maintenance person, etc, so the income is passive. If you had to flee the country, your business would run and operate with minimal interruptions. This is intended for real estate investors, partnerships, stock investors, and people who receive royalties from books/music. Schedule C is for a small businesses with active incomes.
If your average guest stays 30 days or more, then you should report the income on schedule E (regardless of how passive or active you are). If the average length of stay is below 7 days, then you should report the income on schedule C (regardless of how passive or active you are). For rentals that average between 7-30, it depends on your level of activity in the business.
Because of these two things, the majority of Airbnb hosts are going to file schedule C. Most Airbnb hosts are actively involved in their business (actively involved includes messaging guests, cleaning, doing laundry, or buying consumables), and a large portion have a less than 7 day average.
So what’s the big deal about Schedule E vs Schedule C? Schedule C is subject to a 15.3% self employment tax (amount correct as of last year). 1/2 of that amount is tax deductible, but you are still on the hook for an extra 7.65%. People who are unfamiliar with Airbnb assume that it falls under the category of real estate, and think they can save 7.65% by filing Schedule E. I had an accountant try to tell me that once – that’s how I knew I needed to find a new CPA. 🙂
Side note: If you earn less than $20,000 gross per year and/or rent out your property for 199 days or less: You will not receive a 1099 form from Airbnb. There is a tax summary pdf you can download that calculates your earnings from the year.
If you earn more than $20,000 gross per year, and rent your property out for more than 200 days: You will receive a 1099 form from Airbnb.
Home share hosts (you rent out a private room or guest suite in a house where you also live) are the trickiest kind of tax problem. It is very difficult to find information from the IRS or even Airbnb to determine how to appropriately deduct expenses, and it is definitely a gray area. This is how my CPA told me to figure it.
*Again, want to stress that I am not an accountant. Please consult with a professional*
Home share hosts will need three different measurements: square footage of your personal use (bedrooms, private bathroom), square footage of just guest use (guest bedroom or suite), and square footage of shared areas (kitchen, living room, etc). In order for these areas to count as shared, you must have them included on your Airbnb listing.
For example: you have a 1,000 square foot home. 200 square feet is your own personal bedroom, 200 square feet is the guest’s bedroom, and 600 square feet is shared space. 80% of total house bills can potentially be deducted, such as utilities and HVAC repairs. 100% of expenses related just to the guest room are deductible, such as buying a new mattress or repainting the room. This is also true for consumables that only guests use. You can deduct 50% of expenses related to a shared space, like a new television, fridge, or shared consumables like garbage bags or coffee.
*This is if you have 100% occupancy. You will have to prorate your percentages based on how many days your property was actually rented. Even if it is available to rent on Airbnb, it only counts if people actually booked. The reason for this is that if you don’t have guests, you can’t really prove that you weren’t using it for personal use.
(This stipulation only applies to home share hosts. If you have another property that is 100% Airbnb, then you don’t have to prorate it based on days rented.)
Pro Tip: To make this easier to track, we purchase two sets of household supplies. For example, garbage bags. We share garbage bags upstairs, but the garbage bags downstairs are just for guests. We use one business card to purchase items that we claim a percentage of, and another business card to purchase items that are 100% for Airbnb guests.
Things you may be able to deduct:
- Airbnb’s 3% serice fee
- Refunds that you give guests (For example, a guest complains about the listing so you refund them $30 to make them happy. That $30 is not taken off your gross income statement provided by Airbnb, and the IRS assumes you kept every payment. You need to keep track of when you give refunds so that you can claim them at the end of the year)
- Any research you do, like costs associated with spending the night in a local Airbnb or attending an Airbnb conference
- Miles: to the store to get supplies, to clean the other house, going to pick up furniture
- Netflix and Hulu
- HOA fees
- mortgage interest
- interest on a loan taken out to improve the property
- property insurance
- percentage of cell phone plan
- percentage of computer purchase
- cost for acquiring property
- furniture purchases
- consumables (coffee, shampoo, conditioner, etc)
- Labor for repairs
- tax preparation fees
*Be sure to ask your accountant about big expenses. Some things qualify for the whole amount to be taken out in one year, and other times it makes more sense to depreciate the improvement made. In general, expenses that are $500 or less should be deductible during that year.
(sorry, I know taxes are boring…I almost put myself to sleep writing this article)
1.Most Airbnb hosts will file a schedule C.
2. For homes that are not used personally, hosts can deduct 100% of everything. Big renovations and improvements should be depreciated instead of deducted. You can take up to a $25,000 loss per year, depending on the total reported gross income.
3. For homes that double as a private personal residence (like renting a private room or in-law suite), you can deduct a percentage based off of square footage and days actually rented. You can still deduct 100% of items used for the guest rooms. Since it is a personal residence, you cannot take a loss.
Tips to make tax time easier:
Have different cards/accounts depending on your situation.
- One account for items that go to all of your Airbnbs, such as sheets, cleaning supplies, consumables, etc. You can include broader items in here like education/conferences, travel, marketing, website fees, and cell phone bills.
- One account for items that are shared (if you are a home share host), such as cleaning supplies, breakfast, utilities/internet, and maintenance/repair
- One account for each separate listing that is a pure rental (including a private room for home share hosts). Use this account for items specific to the Airbnb listing, such as repairs, improvements, furniture, utilities, internet, set up fees, etc.
Save all receipts in different files depending on what they were used for. Some software will let you take pictures of your receipts and will match it to the correct bank account automatically
We put aside 30% of our monthly net for taxes – and if we go over we figure it’s an extra cushion for emergency savings 🙂
Save all paper bills from utilities, internet, etc.
Hire a great accountant!!
Airbnb published a helpful tax guide.
Complicated taxes are a headache, but with the right accountant and proper planning, they don’t have to ruin your year. Don’t let the fear of taxes keep you out of the Airbnb game! The income and property appreciation you gain through short term rentals will catapult you towards financial independence.
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