Tax Implications for Airbnb Hosts

Tax Law and News house tax law

Becoming an Airbnb host can be an excellent way to capitalize on renting an entire home, extra room or even a spare couch to cost-conscious travelers. However, with extra income also comes tax implications. Chances are, you may have – or soon have – clients who want to use their home as a vacation spot through Airbnb or one of its competitors. If so, you can school them on how this rental income can affect their tax return.

Airbnb Basics

The concept behind Airbnb is to allow travelers to experience places they visit like a local by renting personal residences, instead of staying in a motel or hotel. For Airbnb hosts, this is an opportunity to earn income for the use of their property by renting it through the service. Hosts can rent out an entire apartment or home, or they may offer space within the home where they live. The income is usually taxable, but there are expenses that can be deducted to offset some of the tax liability.

As an Airbnb host, your clients can receive income that is considered either business or rental income. In either case, your clients are allowed to deduct expenses that incurred in the endeavor, including utilities, repairs, supplies, cleaning services and many other expenses. Knowing what they can deduct and what you cannot is crucial to earning the most money as an Airbnb host and avoiding complications with their tax return.

Reporting Rental Income

One of the benefits of using Airbnb is making extra rental income from a property because Airbnb makes it simple for hosts. The company handles all bookings and collects the payments. This makes reporting rental income easy for American Airbnb hosts because the host will receive a 1099-K at the end of year that totals the gross income from renting their property through the service. This information is also sent to the IRS, so don’t forget to help your clients report it on their income tax return.

Airbnb hosts who rent their home or apartment for fewer than 15 days do not have to pay Federal income tax on the money they earn, and they don’t even need to report it on their tax return. Of course, if they don’t report the income, they also can’t deduct any expenses, other than real estate taxes and mortgage interest expense that they would normally deduct.

Tax Implications as an Airbnb Host

If clients rent their home for 15 days or more during the calendar year, they’ll have additional reporting when filing an income tax return. Income from sharing a home needs to be reported on either Schedule C as business income or on Schedule E as rental income, depending on the type of rental provided. If the average rentals are less than seven days, they are considered income from a trade or business and reported on Schedule C. Longer-term rentals are reported on Schedule E. In both situations, clients will be able to deduct some of the expenses of their property to offset the income earned. Some of these expenses include Airbnb commissions and any other expenses incurred that were directly related to the rental. Clients can also deduct the ratable portion of utilities, insurance, taxes and mortgage interest.

While deducting expenses can help reduce the tax they’ll pay on the income they earned, it does require them to track and record all these expenses. It is important they understand the limits to the deductions, often requiring the help of someone just like you, a tax professional.

Using all or part of a home to earn income as a summer vacation rental through Airbnb can be an excellent way to earn extra income, but before your clients enter into this enterprise, make sure they understand all the tax implications to ensure they make the most of this opportunity.

Editor’s note: Here’s a new video from the IRS on tax implications of renting a vacation home.