Navigate the financial side of Airbnb hosting with this guide to tax deductions.
Renting a property on Airbnb can be a true whirlwind. From positive reviews to unexpected surprises, there's never a dull day as an Airbnb host. While hosting can be a great way to earn income and meet people, navigating the financial side can be stressful. Here's what you need to know about Airbnb tax deductions.
Tax Implications for Short-Term Rentals
When you operate a rental property full-time, most expenses and property taxes are eligible as deductions. However, your Airbnb expenses only count when there is a tenant residing on the property. Expenses that don't directly benefit tenants or support your business might not be eligible.
This can be complicated if you reside on the property. Money spent on tenants is a business expense, but money spent towards your own cost of living is not.
Eligibility Criteria for Tax Deductions
Qualified Expenses for Airbnb Properties
Qualified expenses are those associated with running and maintaining your rental property. Airbnb renters can deduct quite a few items as business expenses. For example, hiring a cleaner on TIDY can be deducted.
Differences Between Personal and Rental Use
If you solely rent out a property on Airbnb, you can treat the entirety of the property as a commercial one. However, the laws are different if you sometimes use the property for your own purposes. The IRS outlines that owners establish residence if they reside there for 14 days or for 10% of the days that they've rented it out.
If you spend time in the property as a resident, you'll need clear record-keeping as to what expenses were for your tenants and which were personal. For example, if you spend 15 days residing on your Airbnb property, you cannot deduct any of the utilities, property taxes, or general expenses purchased during that time.
If you reside in your home full-time but just rent out a room on Airbnb, you must appropriately portion out what was spent on your tenant versus what you spent on your own cost of living. It can often be wise to consult with an accountant or tax professional.
Common Deductible Expenses for Airbnb Hosts
Some of the most common expenses associated with managing an Airbnb can easily be written off on your yearly taxes.
Cleaning Services and Supplies
Airbnb guests expect a top-notch level of cleanliness. Thankfully, the costs associated with cleaning your property are tax deductible. This includes both what you spend on professional cleaning services and cleaning products.
Repairs and Maintenance
Repairs and maintenance costs are some of the most common Airbnb tax deductions. A tax-deductible item is typically any expense required to operate and maintain your business. Always keep receipts for any repair or maintenance services.
Insurance
You can count the homeowner's insurance you pay for an Airbnb property as a business expense. Be upfront with your insurance company and make sure you have the right policy for your property.
If you prepay your private mortgage insurance (PMI) premiums, you can only deduct the money spent that applies to the year in which you file your taxes.
Property Taxes and Mortgage Interest
Property taxes and mortgage interest can be a huge burden, but thankfully they count as tax deductions. However, determining what percentage can be deducted can be tricky depending on how many days of the year you are actively renting out the property versus how much time you spend residing in it.
The IRS considers a property to be your residence if you reside in it for 14 days or 10% of the days you've rented it out. Those who use their Airbnb property as a personal vacation home might be ineligible to write off their property tax expenses.
In the event that you have a mixed-use property, you must abide by the gross rental income limitation, which subtracts your expenses from your total rental income to determine how much you're permitted to deduct. If you do indeed spend a portion of the year residing in the property, it might be a good idea to speak with a tax professional.
Utilities
Generally, a safe way to approach tax deductions is to consider anything that was used by the tenant, not by you, as eligible to be considered a deduction.
Appliances, Furniture, and Household Supplies
You need to provide your tenants with the furniture, appliances, and household supplies they need. Because of this, these expenses can be written off as tax deductions. Be thorough with your documentation and be cautious if you reside on the property for a portion of the year.
Marketing and Advertising
The IRS has fairly clear guidelines when it comes to marketing and advertising expenses. Business owners may deduct advertising expenses that are reasonable and directly related to business activities.
Business owners are prohibited from deducting marketing expenses that are political in nature. Should you choose to invest in SEO or marketing services to promote your Airbnb, it's quite likely that you will be able to deduct what you spend on these services.
How To Navigate Local and State Tax Requirements
Local and state tax requirements can vary. Thankfully, the Airbnb platform typically makes collecting Airbnb taxes and fees fairly simple, as it's automated. However, it's a good idea to familiarize yourself with your state's tax requirements as they pertain to rental properties.
When To Consult With Tax Professionals
If you manage a small Airbnb property in which you never reside, you might be able to handle the taxes on your own. However, dealing with taxes becomes more complicated when you oversee multiple properties or when you reside in the property yourself.
When it comes to taxes, the best time to consult with a tax professional is when you feel like you're in over your head. While some who are more familiar with tax code and oversee a smaller property might feel comfortable handling the taxes on their own, the vast majority would likely benefit from consulting with a tax professional, especially in their first year of Airbnb ownership or management.
Key Takeaways for Maximizing Tax Deductions
- There are major differences between a property that is solely used as an Airbnb rental property and a mixed-use property that you yourself reside in. You can only deduct expenses that benefit your tenants, never yourself.
- You might be able to deduct more than you think you can. From paying a TIDY cleaner to purchasing a new sofa, the money you invest into your property can be deducted. Even the money you spend on marketing your property is deductible, provided it isn't associated with a political campaign.
- At the end of the day, tax code can be tricky. If you feel like you're in over your head, it might be a wise idea to consult with a tax professional.
Conclusion
At TIDY, we think that Airbnb hosts deserve all the best options available to them to make running their rental as easy as possible. Create an account today to see why our customers love the peace of mind they enjoy when they work with one of our qualified cleaning professionals.