Airbnb Tax Deductions: A Guide for Short Term Rental Property Managers

Renting a property on Airbnb can be a true whirlwind. From the first time your tenants leave you a positive review to the first time they leave something downright strange in the fridge, there's never a dull day as an Airbnb host. While hosting on Airbnb can be a great way to make some extra inome and meet new people, navigating the financial side of things can be downright stressful. To help you understand the world of Airbnb taxes and fees, here's what you need to know about Airbnb tax deductions.

Tax Implications for Short-Term Rentals

When you operate a rental property that you rent out full-time, such as a standard apartment or commercial rental, you can expect that most expenses and property taxes will be eligible as deductions come tax season. However, it's important to understand that in the eyes of the government, your Airbnb or short-term rental expenses only count when there is actually a tenant residing on the property. Hence, expenses associated with the property that do not directly benefit tenants or support your business might not be eligible as deductions. This can be further complicated if you yourself reside on the property for some or all of the year. To put it quite simply, the money you spend on your tenants is a business expense, but any money you spend towards your own cost of living is not.

Eligibility Criteria for Tax Deductions

Here's what you need to know about what does and does not make an expense eligible as a tax deduction for Airbnb renters.

Qualified Expenses for Airbnb Properties

Qualified expenses are the expenses associated with the running and maintenance of your rental property. While taxes on Airbnb income are similar to the taxes on the income you accrue from other small business pursuits, Airbnb renters are able to deduct quite a few items as business expenses. For example, the money you spend to hire a cleaner on TIDY can be deducted as a business expense. We'll outline more of what qualifies as a tax deductible business expense for Airbnb in the next section.

Differences Between Personal and Rental Use

If you have a property that you solely rent out on Airbnb, you can safely treat the entirety of the property as a commercial one. However, do be aware that the laws are different if you sometimes use the property for your own purposes or as your own residence. The IRS outlines that owners establish residence in a property if they reside there for 14 days or for 10% of the days that they've rented it out to others.

In the event that you spend some time in the property as a resident, you'll need to keep very clear record-keeping as to what expenses were for your tenants and which ones 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 for the property during that time.

In the event that 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. Unfortunately, you don't get a license to write off all of your personal expenses just because you have a tenant living on your property. For those renting just one room or area of their full-time home, it can often be a wise decision 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. Here are the most common Airbnb tax deductions.

Cleaning Services and Supplies

Just as you wouldn't be happy if you checked into a hotel and your room wasn't clean, Airbnb guests expect a top notch level of cleanliness when they arrive at their rental. Thankfully, the costs associated with cleaning your property are tax deductible. This includes both what you spend on professional cleaning services and what you might spend on cleaning products in order to do the job yourself.

Repairs and Maintenance

While needing to foot the bill for an unexpected repair can be an unwanted surprise expense, repairs and maintenance costs are some of the most common Airbnb tax deductions. Remember, a tax deductible item is typically any expense that's required to operate and maintain your business, and you can hardly operate a rental property if its structure and appliances aren't in good working condition. Always keep receipts for any repair or maintenance services, as they can be quite beneficial to you come tax season.

Insurance

You can't deduct the property insurance for your residence, as it's not a business expense. However, you can absolutely count the homeowner's insurance you pay for an Airbnb property as a business expense. The policy you take out for a standard residence is different than the policy you take out for a home you plan to rent out commercially. Be up front with your insurance company and make sure you have the right policy for your property. Not only does this ensure that you'll be able to write off your insurance costs as a tax deduction, but it also ensures that you have the correct coverage you need in the event anything goes wrong.

However, do take note of the fact that 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. This may affect your decision to prepay your PMI premiums depending on your financial situation.

Property Taxes and Mortgage Interest

Property taxes and mortgage interest - as in, the money you pay in interest to the bank for your mortgage - can be a huge burden for property owners, but thankfully they count as tax deductions for Airbnb hosts. However, determining what percentage of your property taxes and mortgage interest can be deducted can be tricky depending on how many days of the year you are actively renting out the property to Airbnb tenants versus how much time you spend residing in the property yourself.

Remember, 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 to others. Hence, those who make use of their Airbnb property as a personal vacation home or dwelling might potentially be ineligible to write off their property tax expenses as a deduction. In the event that you have a mixed-use property that you divide between renting to others and occupying yourself, you must abide by the gross rental income limitation, which subtracts your expenses from your total rental income to determine how much of your property taxes and mortgage interest you're permitted to deduct.

If you manage an Airbnb property in which you never personally reside, this will largely be irrelevant to you, as the property is treated solely as a commercial one. However, 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, as determining the exact amount you can write off as Airbnb host tax deductions can be somewhat tricky.

Utilities

Generally, a safe way to approach tax deductions for Airbnb properties is to consider anything that was used by the tenant, not by you, as eligible to be considered a deduction. Since you aren't personally benefiting from the lights or the hot water your tenants enjoy while staying on your property, they're considered eligible as a deduction.

Appliances, Furniture, and Household Supplies

You need to provide your tenants with the furniture, appliances, and household supplies they need in order to ensure they enjoy a pleasant stay. Because of this, these expenses can absolutely be written off as tax deductions for Airbnb hosts. However, be sure that you are thorough with your documentation and be cautious if you reside on the property for a portion of the year. A microwave you purchase to improve your Airbnb rental property is a tax deduction, the miscellaneous household supplies you purchased that you yourself enjoyed while you were staying on the property might not be.

Marketing and Advertising

The IRS has fairly clear guidelines when it comes to marketing and advertising expenses, for both rental properties and other small businesses. Per the IRS website, 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, such as donations to the campaigns of politicians or political action committees. 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 on your taxes.

How To Navigate Local and State Tax Requirements

Local and state tax requirements can vary depending on where you live. Thankfully, the Airbnb platform typically makes collecting Airbnb taxes and fees fairly simple, as it's automated on their website. However, it's a good idea to familiarize yourself with your state's tax requirements as they pertain to rental properties. This information can be obtained by researching your state's Department of Revenue, or you can seek out the aid of a tax professional.

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 on Airbnb properties becomes more complicated when you oversee multiple properties or when you reside in the property yourself. When it comes to the former scenario, it can be difficult to accurately file your Airbnb taxes yourself when you are dealing with a large number of properties and an even larger number of potential deductions. When it comes to the latter scenario, it requires a bit of know-how with rental tax laws to determine what portion of your yearly expenses you can deduct if some of those expenses were related to your own cost of living.

Ultimately, when it comes to the world of 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 related to their Airbnb property 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 as an Airbnb Host

Remember these key takeaways when it comes to maximizing your tax deductions as an Airbnb host.

• 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 for some or all of the year. You can't deduct your own living expenses just because your property is also used as a rental; indeed, you can only deduct expenses that benefit your tenants, never yourself.
• On the bright side, 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 on your taxes. 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. When it comes to the IRS, it's better to be safe than sorry.

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.

‍