You may rent out a guest bedroom to short-term tenants through Airbnb or another home-sharing site. If so, it’s essential that you understand the tax rules for using your home to earn short-term rental income. Here’s a tutorial.
Federal and local taxes
The IRS has rules regarding the reporting of rental income. Municipalities may have rules as well, requiring that you register as a short-term rental host with your city government and pay the equivalent of a hotel-motel tax. Not all municipalities have these requirements, so you must investigate yours. And it’s always best to consult a tax professional.
Federal tax rules
The federal income tax provisions regarding rental income operate on a 14-day rule.
If you rent any part of your personal residence for 14 days or less per year, you do not have to report your rental receipts as income.
If you rent out your house or any part of it for more than 14 days, you must report your rental income. The next question: Did you live on the property for more than 14 days, or more than 10 percent of the days you hosted rentals? Many Airbnb hosts do. If so, you can write off a portion of the expenses for rental days equal to the percentage of the house each rented room represents. If the rented bedrooms represent 20 percent of your house’s floor space, for example, you can claim expenses for 20 percent of the utilities and other costs for the whole house for the rental days. You can claim expenses up to the equivalent of rental income, but you cannot claim losses.
If you rent your house for more than 14 days and use it personally for 14 or fewer days, or 10 percent or fewer days than it was rented, you must report the rental income, can fully deduct expenses, and may be able to write off up to $25,000 in losses.
These same 14-day rules apply to situations where an owner rents an entire home to vacationers butalso reserves some time during the year to stay there personally.
Another federal tax wrinkle
The level of hospitality you offer as an Airbnb host determines how your income is reported on your tax return.
Suppose you provide simple room rental but do not offer substantial services, such as daily breakfast, fresh linens and other hospitality. In that case, you are simply in the rental business, and your income is reported on Schedule E for Supplemental Income and Loss.
But if you roll out the red carpet and supply a meal, fresh linens each day, daily maid service and other amenities creating an enriched guest experience, you are considered to be in the service sector. Your rental receipts are income. You can write off all expenses toward accommodating your guests and claim losses.
Related – How to Use Your Home to Make Money