Taxes can be a pain and it may not be clear right away who pays them when it comes to Airbnbs. But, with a little time taxes surrounding your Airbnb can be clarified and even help you save money.
First let’s break down the different types of taxes and who pays them.
1. Income Tax- Who pays this? You. If you rent out an Airbnb, you are required to report your earnings and expenses. Your earnings will be taxes as part of your income, but your expenses can be deducted in some situations. This is a great article that breaks down what can be deducted and what can’t. H&R Block provides a complete guide. You will also need to allocate property tax and mortgage deductions. If you earn enough through Airbnb ($20,000 and at least 200 reservations), they may report your earnings and sends you forms accordingly. Depending on your earnings, you may need to report them on your state income tax as well.
2. Sales and Occupancy Tax- Depending on where your Airbnb is, you may have to pay sales tax or occupancy tax (essentially taxes paid by hotels) to the state, county, or city. These taxes are interesting because you have responsibility for them, but the guests pay them. Airbnb recommends including these taxes in the price of reservation as a special offer or collected in person. These taxes are then remitted to your state, county, or city. In select areas, Airbnb includes sales tax automatically.
There are some other important things to note about Airbnb taxes.
First, if you rent out a property for 14 days or less and live in it 14 days or more out of each year, then your earnings from renting it out are tax-free. You don’t even need to report that income on your returns.
Second, it is possible to use vacation rental properties as tax shelters and greatly increase your expenses. This takes a little time in learning all the different tax policies. This small business blog gives a great walkthrough of how to use your vacation rental as a tax shelter.
Hopefully this helped you see that taxes are a part of the Airbnb hosting experience, but they don’t have to give you a headache and can even help you increase your earnings!
We definitely recommend chatting with your tax professional for further advice and clarification.