Airbnb has empowered thousands to become part-time entrepreneurs renting out their homes or spare room as a source of secondary income. Being an Airbnb host can be extremely profitable, but like any business owner, Airbnb hosts must follow and pay taxes on their new source of income.
We decided to give our hosts a quick guide to determine if and what taxes you owe Uncle Sam as an Airbnb host when tax season rolls around.
Do you rent out your listing for more than 14 days a year?
You owe taxes, both local and income tax. Skip to the next section of this post for more details about the difference between the two taxes and strategies on how to collect them.
Under a federal tax exception named the Masters Exepmtion, hosts who rent out their house or apartment for less than 14 days are not required to pay taxes on that income.
What is the difference between the local and federal income tax I owe?
When Airbnb refers to “local taxes” they are referencing the occupancy tax (sometimes referred to as a hotel tax, lodging tax, room tax, or tourist tax) which is generally between 3%-15%, depending on the county. Here’s a few examples of the difference in the occupancy tax in a few major cities in the USA:
These taxes are similar to the taxes in which hotels pay, and help fund and support the tourism industry and public sector in your city. Airbnb collects this tax for their hosts in Amsterdam, Chicago, Washington D.C., Malibu, Portland, North Carolina, Oakland, Palo Alto, Philadelphia, Phoenix, San Diego, San Francisco, India, Mont-Blanc, and Rhode Island. If you do not operate your Airbnb in one of the markets listed above, you need to collect the tax from your guests yourself. Local taxes on Airbnb differ by the city and county in which you run your Airbnb. You need to familiarize yourself with your local tax laws in terms of running a short-term vacation rental which can be attained on your local county website. That said, Airbnb encourages hosts to pass these taxes onto the guest so as a host the only taxes you are paying at the end of the year are federal income taxes.
In terms of collection, Airbnb provides hosts with three suggestions on how to collect the local tax:
- Incorporate it into your nightly rate
- Add it as a special offer
- Ask guests to pay in person
If you rent your Airbnb out more than 14 days a year, your income earned from hosting is indeed subject to US income tax. Airbnb collects your taxpayer information, but you still need to fill out a W-9 form. At the end of January, Airbnb sends out a 1099-K for hosts that have filled out the W-9 to make you aware of reportable earning from the year prior.
Can I write off expenses used to run my Airbnb?
Yes! The benefit of being taxed as a business for Airbnb is the fact that you can expense any costs associated with running your Airbnb.
Did you purchase keyless locks for your Airbnb? Do you pay a cleaning service for turnover of your listing? Do you use Beyond Pricing to automatically price your unit dynamically?
You can write off all the above expenses making add-on service such as Beyond Pricing that much more worth the investment.
Disclaimer: All information is meant only as a guide. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.