If you're an Airbnb host, it's important to know that taxes for home-sharing businesses are similar to real estate rentals, but they have some unique calculations.
This article discusses the types of deductions your Airbnb business can take and how to calculate those deductions.
- Airbnb hosts are usually considered owners of rental property, not small business owners, for tax purposes.
- How Airbnb hosts deduct expenses depends on whether they are renting out an entire home or just part of the home.
- Some deductions must be calculated based on the number of days the home is used for rental and the part of the home that's rented.
Airbnb Hosting as a Business
Most Airbnb hosts pay taxes as landlords. Being a landlord is—for tax purposes—different from being “in business.”
The Internal Revenue Service (IRS) considers this rental or landlord activity as a passive activity for tax purposes because the business person doesn't "materially participate" in the activity in the same way as the owner of a business does. Rental activities are passive even if the owner does materially participate.
Rental businesses can only take tax deductions for passive activity up to the amount of your income from that activity. You can’t take a passive activity loss that’s greater than your income.
How Airbnb Hosts Take Deductions
You can take deductions for expenses for the use of a home or apartment used for rental purposes.
If you rent out your home for fewer than 15 days a year, the income is not counted and you don’t need to report any income you receive. You also can’t deduct any expenses for these rentals.
Some expenses may be limited based on the number of days you have renters and the amount of rental space in your home. You will need to report the number of days you rented at a fair rental price for your home or part of your home.
If you are only renting part of your home space, you can only deduct the part of your expenses that applies to the rented space and only for the days you rented it at a fair rental price.
- Host expenses are expenses for your activity as an Airbnb host and may be deducted in full, subject to IRS limits. These are expenses related completely to your business as a host.
- Shared expenses are those only for space in your home that you rented out and only for the days you rented it.
If you are renting a room or part of your home, you’ll have to calculate the percentage of the entire floor space of your home that is the rental space. For example, if your home is 2,000 square feet and the room you are renting is 120 square feet, the room is 6% of the total.
Examples of How Shared Expenses Are Calculated
Case #1: Sally rents her entire home 70 days during the year, she lives in the home for 295 days, and her indirect expenses are $1200. The total rental time is 19%, so she can take 19% of her indirect expenses, or $228, as rental expenses. As a calculation: 70 days is 19% of the total 365 days as a rental, so $1200 of indirect expenses times 19% equals $228.
Case #2: Sally rents a room in her home 70 days during the year. The room is 6% of her home space. She can only take indirect expenses for the 70 days and only for the amount of space used. As a calculation, that’s $1200 of indirect expenses times 19% (for days used as a rental), which comes to $228. Then, $228 times 6% of the home used means that $13.68 allowed for indirect expenses.
Deductible Expenses for Airbnb Hosts
Here are the expenses you can deduct from your activity as an Airbnb host. This is a brief overview of these expenses. Some of them may be limited or may not be applicable to your situation.
You must be able to prove that your expenses are both ordinary (typical for Airbnb hosts) and necessary to run your business. This means keeping excellent records in case of a tax audit.
You can take these expenses at 100% as long as they fully relate to your business:
- Advertising your home for rent through a home-sharing service
- Commissions or fees you pay to others who help you find renters, including Airbnb fees
- Legal and other professional fees that relate completely to your business
- Repairs to the area used for your Airbnb business (whole-house repairs must be shared)
- Supplies and equipment used only in your business
You must divide these home-related expenses between the business and personal portions, based on the rental space percentage and days used for rental purposes.
- Cleaning and maintenance
- Insurance on your home
- Mortgage interest
- Property taxes
- Interest expenses on a home loan
- Tax preparation expenses (shared by separating the business tax schedule fee from the fee for the rest of Form 1040)
You can’t deduct the cost of a landline in your home, even if renters have use of it. You also can't deduct the value of your own labor as a host. If you make improvements to the area you use for your Airbnb clients, you can't deduct those, but you may be able to depreciate these improvements over time.
Getting Help with Deductions
The IRS has an Interactive Tax Assistant that walks you through an interview to determine what's deductible and what's not. You might also find Worksheet 5-1 on IRS Publication 527 helpful for calculating deductions as an Airbnb host. And, of course, you can get help from a licensed tax professional.
Frequently Asked Questions (FAQs)
What expenses can I write off for an Airbnb?
You can write off (deduct) all ordinary and necessary expenses for your Airbnb business as long as you in business to make a profit (not a hobby). The amount you can write off depends on two factors:
- How much of your home is used for Airbnb rentals
- How many days of the year is your home used for this purpose
Most expenses must be shared between business and personal use. For example, if you rent your entire home 100 days a year, you can only deduct 27% of your utilities cost. If you rent only 20% of your space, you can only deduct 5.4% (20% of 27) of your utilities.
Is Airbnb a good tax write-off?
The amount you can write off for Airbnb expenses depends on how you pay your business taxes. If you are using your home for rental purposes only, you report your taxes on Schedule E of Form 1040. If you are providing services to Airbnb clients, like dry cleaning or breakfast, you are taxed and take deductions as a small business. In this case, you report your business income on Schedule C.
The main difference between these two forms is that rental income reported on Schedule E is considered passive income for tax purposes, and you can't use deductions to take a loss for the year. Because business owners (reporting on Schedule C) are considered to be taking more of a risk, they can take a business loss to offset income for the year.
If I rent out my place for only a few nights a year, can I get a tax deduction?
If you use your home for Airbnb guests fewer than 15 days a year, you aren't considered to be in business. You don't have to file a tax return or pay taxes, but you also can't get tax deductions.