Tax Deductions for Airbnb Hosts
Tax Deductions for Airbnb Hosts: How to Take It
There are plenty of tax deductions for Airbnb hosts as well as advantages. You can make some money by renting out your house or apartment when you’re away from home, meet new people from all over the world, and it’s an easy way to help pay your bills if you live in an expensive city like New York or San Francisco.
But there are also a few disadvantages of becoming an Airbnb host. For example, you must manage potential guests coming from all over the world and be able to check on your place at any time you have a guest. Moreover, many hosts have issues with their homeowners insurance because they list their home as being rented out frequently during peak vacation times.
If you’re thinking of becoming an Airbnb host, it is important to understand how tax deductions for Airbnb hosts work if you plan on deducting any Airbnb tax deductions 2022 expenses related to your listing on their site. Here are some tips that will help you get the most savings possible when filing your taxes after spending the year as an Airbnb host.
It’s crucial to be aware that while taxes for Airbnb hosts are the same as real estate rentals and have different calculations, they can also apply to home-sharing business. Maintaining an Airbnb expenses spreadsheet usually helps most people.
This article explains the deductions that your Airbnb business may be allowed to make and how they can be calculated.
The Key Takeaways
- For tax purposes, Airbnb hosts will usually be considered to own rental properties, and not as small-business owners. These activities are reported on Schedule E for Airbnb hosts.
- Airbnb hosts can deduct expenses depending on whether the property is being rented out as a whole or as a part.
- Based on how often the house is rented and which part of it has been rented, some deductions will be made.
Host Airbnb as a Business
For tax purposes, being a landlord can be different from “in business”.
For tax purposes, the Internal Revenue Service (IRS), considers rental activities or landlord activities passive because they don’t involve the business owner in any way. Even if an owner participates in the rental activity, it is passive.
A passive activity can be deducted only by rental businesses up to your earnings. Passive activity losses that are greater than income cannot be taken.
How tax deductions for Airbnb hosts are calculated
Allowances can be taken to deduct expenses for renting a house or apartment.
Renting out your house for less than 15 days per year is exempted from reporting and no deductions can be made either.
You may have expenses that are limited depending on how many renters you have and how much space your rental property has. Report the days that you rented your property at an affordable rental rate for your house or part thereof.
You can only subtract the portion of expenses you have incurred for renting a part of your house and not the total expenses of your home.
These tax deductions for Airbnb hosts can be taken out of pocket, but limits may apply. They are all expenses that directly relate to your host business.
These expenses can only be shared for the space you have rented and for only the time you used it.
You will need to determine the proportion of your entire home used for rental purposes. If your house is approximately 2,000 sq. feet and the area you rent is 120 sq. feet, then the rental space is 66%.
Example of how shared expenses are calculated
Sally is renting her whole home during the year. She lives there for 295 days and incurs $1200 in indirect expenses. She can claim 19% or $228 of her indirect expenses as rental expenses for the total time she rents. The 70-day rental period is 19%. Therefore, $1200 in indirect expenses multiplied by 19% will equal $228. You can’t claim tax deductions for Airbnb hosts at full value, they must be apportioned.
Sally rents her room at home for 70 days each year. It takes up 6% of Sally’s home. The room is 6% of her home space. She cannot take any indirect expenses beyond the first 70 days. This is $1200 in indirect expenses multiplied by 19% for days that were rented, which works out to $228. This means $13.68 can be used for indirect expenses.
Tax deductions for Airbnb hosts may be limited
These expenses can be deducted from the activity of an Airbnb host. You may find some of these expenses not applicable or limitable.
It is essential that you can prove your expense are usual (as Airbnb hosts do) or necessary for your business to function. You should keep excellent records for tax audits. We can’t stress this enough! An audit manual was written for IRS auditors just covering Airbnb activities.
- These expenses can be taken at 100% if they are directly related to your business.
- Rent your house through a home sharing service
- You pay commissions to other people who assist you in finding renters.
- All legal and professional fees related to your business
- You must share repairs to your Airbnb property (whole-house repair)
- Only use supplies and equipment for your business
- Shared expenses
These tax deductions for Airbnb hosts, home-related costs, must be divided between your personal and business portions based on how much rental space you have and the days that were used.
- Maintenance and cleaning
- Home insurance
- Hypothecary interest
- Taxes on property
- Home loan interest expenses
- Separate the tax preparation fees (by dividing the business tax schedule fee and the remainder of Form 1040 fee)
Even if you rent it, the cost for a landline telephone can’t be deducted as an expense. As a host, you cannot deduct the cost of your labor. You can not deduct improvements made to your Airbnb client’s area, however, these may be depreciated over time per IRS guidelines.
Get Help With Deductions
An Interactive Tax Assistant from the IRS walks you through interview questions to help determine what is deductible. Worksheet 5-1 from IRS Publication 527 may also be helpful in calculating tax deductions for Airbnb hosts. You can also get assistance from licensed tax professionals.
Most Frequently Asked Questions
How can I deduct expenses for Airbnb?
All expenses that are necessary for running your Airbnb business can be deducted (written off) as long as they are profitable. Two factors affect the amount that you are able to write off:
What portion of your house is being used to rent Airbnb rooms?
The majority of expenses have to be split between personal and business use. If you only rent 100 days per year for your home, 27% can be deducted from your utility costs. You can deduct only 5.4% (27% of 27), if you only rent 20% of the space.
Can you write off furniture for Airbnb
Furniture and other fixtures that are purchased for use in the Airbnb are depreciated over the useful life, which is normally 5 to 7 years. In addition, you can also depreciate the home based on the percentage that is used only for the Airbnb
Can Airbnb be a tax-free option?
You can deduct Airbnb business expenses based on the way you pay taxes. You must report taxes on Schedule E only if you use your house for rental purposes, and the average rental must be for 7 days or more. You are subject to other taxes if you provide personal services for Airbnb clients such as dry cleaning and breakfast. You must report income on Schedule C in this instance. A Schedule C with a profit will cost you an additional 15.3% for self-employment tax.
There is one major difference between the two types of rental income. Schedule E income can be passive income and can be used to offset other passive losses. Business owners who report on Schedule C and have an operating loss, can use the loss to reduce other taxable income on their tax return.
Can I claim a deduction if I only rent my house for a few nights per year?
You are not considered to be in business if you rent your Airbnb home less than 15 days per year. This short-term rental tax loophole is available in that situation. While you don’t need to file or pay taxes, tax deductions are not available.
The IRS considers Airbnb hosts to be landlords. The phrase “owner” in the context of real estate often refers to a person who owns the property in its entirety. If you rent out your room or house, you are a landlord.
The phrase “investor” in the context of real estate often refers to someone who owns only a portion of the property for investment or tax purposes. If you rent out only a few rooms of your house, you are not an investor. You are also not an investor if you rent out your entire home.