Airbnb Hosts May Be Subject To Taxes When Renting a Summer Home
Renting out your summer vacation home this season? If you are doing it through Airbnb, remember hosts must comply with the tax regulations in their area. We urge you to contact us if you need advice on reporting your income, or have questions about the taxation of rental income and other related matters.
For federal income tax purposes, net rental income is taxed at ordinary income tax rates with certain limitations. Net rental income may also be subject to state income tax. Quarterly estimated tax payments is the method used to pay tax on rental income not subject to withholding. Be aware that states like New Jersey and Massachusetts are implementing taxes on short term rentals that include Airbnb. We recommend that if you determine that you need to collect local occupancy tax, you inform your guests of the exact amount prior to booking and ask them to pay upon arrival.
The IRS requires Airbnb to report gross earnings for all US users who earn over $20,000 and have 200+ transactions in the calendar year. If you exceed both IRS thresholds in a calendar year, Airbnb will issue you a Form 1099-K. Remember to take the proper deductions, otherwise you will be overpaying taxes.
Not all of your Airbnb income is taxable. Taxable rental income is the gross amount of rent received less any allowable expenses. Deductible items may include rent, mortgage, cleaning fees or repairs, rental commissions, insurance, and other expenses like advertising. Other factors you might consider when assessing taxable income include renting vs. owning the space, number of nights hosted, tax status, and total net amount earned. Security deposits, if returned, are not included in rental income. If a reservation is cancelled and you receive an accommodation fee, that amount is considered rent.
If the dwelling is used as your home and you rent it less than 15 days annually, its primary function is not considered to be a rental unit. You must charge a fair rental price, or an amount that a person not related to you would be willing to pay. It doesn’t have to be a house, it could be an apartment, condominium, mobile home, or vacation home (even a boat!). You are not required to report the rental income and rental expenses from this activity, and cannot take deductions. For any other scenarios regarding rental days and personal days, tax planning becomes important especially if you start to make real money!
When it comes to repairs, maintenance and improvements, we can assist you in determining whether to deduct or capitalize. You would capitalize any expense you pay to improve your rental property. If the expense incurred does not add to value, it would be deductible as a repair. Depreciation may help you recover the cost of rental property through annual deductions.
CONTACT US: Renting out a summer house to vacationers can be a smart way for you to enjoy the benefits of a second home and offset the strain on your pocketbook – just keep in mind it may come with tax consequences, or benefits! Be aware of the 14 day rule and your obligations as well as the opportunities. The professionals at Fuoco Group can help you make your rental experience as a landlord a happy one. Call toll free, 855-534-2727.
