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Stop Overpaying on Taxes: Airbnb Tax Deductions Tips
Just like other businesses are allowed to deduct certain expenses, tax regulations also make provisions for Airbnb hosts to lower their taxation bills by claiming tax deductions. This means you can deduct certain types of rental expenses from your taxable Airbnb income.
If you operate in the rental space, continue reading to learn more about how taxation works for vacation rental companies and which tax deductions are allowable in this industry.
Remember, though, that the information shared in this blog post cannot be considered tax advice. Always consult a tax advisor if you feel unsure about taxes or encounter any tax problems.
Should I Record my Airbnb Income and Expenses for Tax Purposes?
Before you start to record your business income and business expenses for tax season, it’s important to determine if you’ll need to pay taxes on your property rental in the first place. To figure this out, there’s one key rule — the 14-day rule — that you need to understand clearly.
If you need to report rental income, this rule determines if a property qualifies as a personal residence or a vacation rental home. Moving forward, this will have a massive impact on how your taxes, including expenses that are deductible from tax, get calculated.
In the US, according to the IRS, if you rent out your property for less than two weeks (14 days or fewer) during a year, it’s regarded as a personal residence and not a vacation rental property.
In this event, you don’t have to report the rental income. That being said, you also won’t be able to deduct rental expenses.
If your property is regarded as a short-term rental property (it gets rented out for more than 14 days per year), you’ll need to report all your rental income. In this case, it becomes key that you record your Airbnb income and expenses diligently for taxation reasons.
Which Airbnb Expenses Are Tax-Deductible?
There are several expenses that short-term rental hosts can deduct from their taxable income if their property isn’t used as their primary residence. In a nutshell, a tax-deductible expense is considered any basic expenses that went towards managing and maintaining the vacation rental property.
Examples of the most common Airbnb deductibles for tax expenses are:
- Service fees are charged by a property management company, real estate agent, short-term rental software solution, and/or an online travel agency (OTA) like Airbnb, etc.
- Cleaning supplies
- Fees paid for cleaning services
- Rental and property taxes
- Property insurance
- Marketing and advertising cost
- Utilities
- Maintenance and/or repair costs
- Business-related transportation costs
- Expenses related to improving the guest experience, like leaving welcome gifts
- Legal costs
Suppose you have a dedicated home office from where you run your vacation rental business. In that case, you’ll also be able to deduct expenses, like stationery and office supplies, relating to the upkeep of such a home office.
Will I Get Tax Forms from Airbnb?
OTA rental platforms, such as Airbnb, will send a 1099-K form only to hosts who have received over 200 reservations and generated more than $20,000. If you didn’t receive any tax forms, it doesn’t mean that you don’t owe any tax on your Airbnb income, though. If your profit was less than this amount, you might still have to pay some tax.
If you had any taxes withheld from your payouts, they’ll also send you a form so that you can claim these on your tax return.
Schedule C and Self-employment Tax
In addition to the 1099-K form that you might receive from the vacation rental platform, you might also need to complete a Schedule C form and pay self-employment tax.
For example, if you offer extra services, like laundry and home-cooked meals, on top of renting out your property to guests, you’ll also need to fill in a Schedule C form (Form 1040). The reason for this is that the tax authorities in the US might regard your business activity as more substantial than simply renting out a vacation rental property to earn a passive income.
In this case, you might also be responsible for paying self-employment taxes, like Social Security and Medicare contributions, on top of income taxes.
Do I Have to Collect Occupancy Tax?
Whether or not you’ll need to collect occupancy tax (also called hotel tax or transient lodging tax in some states) will depend on your jurisdiction. In many instances, hosts are required to collect occupancy tax directly from guests. If this is the situation, they’ll also have to submit the occupancy taxes that they’ve collected to the relevant tax authority.
However, if this doesn’t apply to your city, Airbnb will be responsible for collecting and sending the occupancy tax on your behalf.
What Is the Short-term Rental Tax Loophole for Airbnb?
The "short-term rental tax loophole" is a legitimate IRS provision allowing property owners to reclassify rental income as active business income (and not passive) if they meet specific criteria. This enables Airbnb hosts to offset active income (W-2 wages) with rental-related losses, reducing taxable income.
Should I Get Professional Tax Advice?
Even when you’re armed with these tax tips and have a solid understanding of how income taxes work, it’s highly recommended that you seek advice from a rental income tax liability professional. One of the reasons for this is that the tax rules and laws differ from state to state.
Expense Tracking Apps for Your Airbnb Business
In addition to seeking professional tax advice, it’s also a good idea to invest in software solutions to help you streamline the record-keeping process. Here are three apps that you can check out:
Stessa
Stessa is trusted and loved by real estate investors to simplify the finances of their rental properties, including short-term rentals. You can use it for tracking, managing, and reporting on how your properties perform. Its income and expense tracking automation feature in particular is very useful.
Wave
Wave is a suitable solution for property managers and Airbnb hosts seeking basic accounting without high software costs. It makes it easier to track deductible expenses like repairs or supplies, as you can capture expense receipts via mobile app.
QuickBooks
You’re probably already familiar with QuickBooks. It’s one of the leading names in accounting software and can help you track your income and expenses. It tracks potential tax deductions on your behalf.
Simplify Your Property Management to Be Ready for Tax Season
As soon as your Airbnb business takes off and you’re renting out your property more regularly, it will become much more time-consuming to balance income tax and even mortgage interest payments.
In addition to investing in an Airbnb expense tracking app, it’s also a great idea to add a vacation rental software solution to your tech stack. Vacation rental software, like iGMS, can help you save loads of time on key routine tasks like guest communication and cleaning management.
This ultimately frees up time that you can devote to other critical business operations, like seeing your taxes get paid on time and managing your expenses. Plus, you can deduct the cost of the subscription from tax!
How Can iGMS Help?
In addition to guest communication and cleaning management, iGMS can also help you with tasks such as:
- Managing multiple accounts and listings on the top OTAs from a single interface
- Creating and coordinating cleaning tasks with live tracking to completion
- Creating your own direct booking website
- Adjusting your pricing in a smart way through integrations with PriceLabs, DPGO, and Wheelhouse
- Automating the process of guest reviews
In Conclusion
Be sure to consult your tax advisor about any extra income that may need to be included in the calculations for this tax year. Include cleaning fees, any additional services that guests pay, your host service fee and anything else related to the rental of your entire house.
