The sharing economy is great, right? Many Americans are apart of it as both providers and consumers, giving and taking rides via Uber, vacationing or renting out their apartments for part time cash via Airbnb, and so on. If part (or all!) of your income has been a result of hosting on Airbnb, you have to take special care in reporting it come tax season. Read below for what you need to know.
Timing is Everything
If you rent your home for fewer than 14 days out of the year, you’re in the clear – the amount made will not be taxable. If the rental period is no more than 15 days, you don’t even have to report it at all. For this exception, the home rented must be used for your personal purposes, whereby you use it for more than 14 days, or 10% of the number of days you rent it, whichever is greater. However, there is a catch: if you use the home for your personal purposes, but it is not your primary residence, the rental income and expenses must be reported. If you rent out your primary residence for more than 14 days, you will have to report the income and pay income tax by filing Schedule E.
Fortunately, Airbnb supplies you with all information needed to file your tax returns properly. They may issue you Form 1099-K, reporting the gross amount earned during the year. You will use this form to report earnings on your 1040, unless the exception above applies.
Although you may have to report your earnings and pay taxes, you can deduct rental expenses; 100& of direct expenses and a portion of general expenses. Direct expenses include but are not limited to insurance, background checks, advertising, fees to the rental agency, and cleaning costs. General expenses include mortgage interest, real estate taxes, cleaning, repairs, internet, and more. Beware of deductions, as the IRS imposes strict limitations to ensure you are not deducting personal expenses. For example, if you only rent out one room or a portion of your home, you can only make deductions in relation to the portion rented.
Consult a Professional
Rules and exceptions can get a bit sticky when you’re apart of the shared economy. Always consult a tax professional to ensure you are reporting correctly, and taking the correct deductions, for your best financial situation.
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