How to File Airbnb Taxes

Since its emergence in 2008, Airbnb has exploded in popularity. It made the short-term rental model available to virtually everyone who owns property, disrupting the hospitality industry and changing the real estate investing landscape.

Even those who only own a primary residence can now use Airbnb to monetize spare rooms or rent out their home while taking vacations. As a result, there are a whopping seven million Airbnb listings across 100,000 cities in 2023.

However, as lucrative an opportunity as the platform is, using it means taking on additional tax obligations. If you plan to make money as a host, here’s what you need to understand about Airbnb taxes. 

Understanding Airbnb Taxes

Airbnb host income is potentially subject to a variety of taxes. The most notable possibilities include the following:

• Income taxes

• Self-employment taxes

• Net investment income taxes

• Local occupancy taxes

Which of these you owe depends on the circumstances, including whether you use your rental property personally, how many days you rent it each year, and its location. Let’s discuss how to determine whether you need to pay each of them in turn.

Disclaimer: The information on this website is not intended to provide, and should not be relied on, for tax advice.

Income Taxes

You'll probably owe income taxes on any net profit you earn through your Airbnb rentals. That’s the progressive tax we pay on all income, including W-2 wages, investments, and business earnings.

However, there’s one exception. It’s called the Masters or Augusta exemption, named after the Masters golf tournament in Augusta, Georgia. You typically don’t have to report rental income for a property that meets the following requirements in a given year:

• You rent it out for fewer than 15 days

• You use it as a personal residence for at least 15 days

For example, say you own a single-family home and live there full-time, except for a 14-day vacation to Hawaii. While you’re away, you rent out your house for $400 per night. You wouldn’t have to report the $4,800 of rental income on your tax return.

Self-Employment Taxes

The self-employment tax is a 15.3% tax made up of a 12.4% Social Security tax and a 2.9% Medicare tax. It applies to the net earnings you generate when working for yourself on a trade or business.

Long-term rentals are usually exempt from self-employment taxes. Still, short-term rentals like those typically listed on Airbnb may qualify as businesses, making their profits subject to the 15.3% tax.

Generally, your short-term rental is subject to self-employment taxes when you provide “substantial services” to your guests. Substantial services are services offered primarily for your guest’s convenience, such as those a hotel might provide. For example, it may include daily housekeeping, transportation, or concierge services. 

It's always a good idea to ask a professional for help with this aspect of your Airbnb taxes. The rules are complex and full of gray areas, and the stakes are too high to risk making a mistake.

Net Investment Income Taxes

If you don’t offer substantial services to your guests, your Airbnb rental’s profits are probably exempt from self-employment taxes. However, they may be subject to the net investment income tax (NIIT) instead.

The NIIT is a flat 3.8% tax on passive investment income, including certain rental income. However, it only applies to high-income earners. More specifically, your gross annual income must be above the following thresholds after some modifications:

• $200,000 for single filers and heads of households

• $250,000 for married filing jointly

If your modified annual gross income exceeds these amounts and you don’t offer substantial services, some of your Airbnb income may be subject to NIIT. In that case, it’s once again a good idea to consult a tax professional for help.

Occupancy Taxes

Lastly, the occupancy tax is a pass-through tax on income generated when travelers rent lodging and stay for less than 30 days. If you've ever stayed in a hotel, chances are you've paid this tax without realizing it, as it is usually included in your final bill. The official name and tax rate depend on your location, as it's only applied by local governments, such as states and cities.

Fortunately, as an Airbnb host, you don't have to pay occupancy taxes out of your pocket or report them on your income tax return. You're only responsible for submitting what you collect from your guests, usually quarterly, alongside an occupancy tax form.

Even better, Airbnb has arrangements with governments in certain areas to handle this process for you automatically. However, that’s not guaranteed, and you’re responsible for occupancy tax compliance either way, so do your due diligence.

Airbnb Tax Forms

Assuming you don't qualify for the Master's exemption, you must report your rental income and expenses on your tax return as an Airbnb host. Where you report it also depends on whether you provide substantial services to guests.

If you provide daily room cleanings, breakfast, or laundry services, your Airbnb may be more like a hotel than a traditional rental. In that case, you may have to report your activities on Schedule C, and your net profits may be subject to self-employment taxes.

If you don’t provide these services to your guests, you can probably report your activities on Schedule E. They’ll be exempt from self-employment taxes but may be subject to NIIT.

This is another aspect of Airbnb taxes where professional assistance is essential. There are factors to consider that are beyond the scope of this article, and you don’t want to mess this part up.

Tracking Airbnb Income

As an Airbnb host, you must keep track of your gross rental income and report it on your tax return. Fortunately, doing so should be relatively straightforward. The platform does most of the work for you.

You can always reference your Earnings Summary and Transaction History through your account dashboard. These unofficial data sources let you view your gross earnings and services fees for any period, such as the last 12 months.

You may also receive official confirmation of your gross rental income in the form of a 1099-K. To qualify, you must earn at least $20,000 and have over 200 transactions for 2022 and all prior tax years. However, you only need to make $600 in 2023 and beyond.

If you meet the requirements for a 1099-K, you should be able to access an electronic copy through your account by January 31. The IRS will receive a copy of the same document and investigate any differences between it and your tax return.

As a result, you should double-check that the information in your 1099-K is correct by reconciling the amounts to your Earnings Summary, bank statements, and other accounting records.

Airbnb Host Tax Deductions

Tax deductions or “write-offs” are expenses you get to subtract from your gross income, lowering your taxable income and indirectly reducing the taxes you owe. To be considered tax-deductible, an expense must be “ordinary and necessary.”

Generally, ordinary means being customary for your industry, while necessary means being helpful and appropriate. Let’s go over some common examples of tax deductions for rental properties to help you understand how it works.

Examples of Airbnb Tax Deductions

Have you ever wondered, “What can I write off on my taxes for Airbnb?” Fortunately, the answer is “quite a bit.” In fact, rental properties often have enough tax-deductible expenses to generate a net loss on paper.

That’s primarily due to one tax deduction in particular: depreciation. It's a non-cash expense representing the wear and tear on your property over time. It lets you gradually write off the cost of the asset, even though you don’t pay it out of pocket each year.

In addition to depreciation, some other potential Airbnb tax deductions include the following:

• Advertising

• Supplies

• Utilities

• Repairs and maintenance

• Airbnb service fees

• Mortgage interest

• Homeowner’s insurance

• Property taxes

• Professional services (like a tax preparer’s)

However, you can’t write off 100% of these expenses if you use your Airbnb as a personal residence. You can only claim the business portion, which is limited by the percentage of the space you rent out and the percentage of the year you do so.

For example, you might rent out a spare bedroom that contains 300 of your property’s 1,000 square feet, or 30% of it. If you rent the room out for a quarter of the year, 25% of it, you could claim 7.5% of most deductible expenses (30% multiplied by 25%).

In addition, there may be a limit on the tax deductions you can claim if your Airbnb generates a net loss. Make sure to ask a tax professional about the at-risk and passive activity rules if your write offs exceed your income.

How to Make Quarterly Estimated Tax Payments

While employees have an employer to withhold income taxes from their paychecks, Airbnb hosts generally don’t get the same benefit. As a result, you must make quarterly estimated tax payments if you expect to owe at least $1,000 in taxes for the year.

Aim to pay 25% of the amount you expect to owe by the following dates:

• April 15

• June 15

• September 15

• January 15 (of the following year)

Fortunately, you don’t have to predict your tax bill with perfect accuracy. You can avoid incurring penalties by paying at least 90% of the taxes you owe for the year or 100% of the taxes you paid in the previous year.

How to File Your Airbnb Taxes

With documentation of your rental income, tax deductions, and quarterly estimated tax payments in hand, you should have what you need to start filling out Form 1040 and the necessary supporting schedules.

However, it's probably best to get help from a tax expert before filing. The tax regulations regarding short-term rentals are incredibly complicated, and this article only introduces them. 

Whether you get help or not, you must submit your tax return by April 15 to avoid penalties. You can file an extension to push back your filing date to October 15, but you still have to pay your taxes by the April deadline.

Another great way to make your Airbnb taxes easier is to use Found! It’s a checking account built from the ground up with the self-employed in mind and can automate many of the tax-related parts of rental ownership.

For example, Found can automatically calculate and set aside the perfect percentage of each rent payment you get, ensuring you have enough money for your quarterly estimated tax payments. Sign up for Found for free and give it a try today!

FAQ

Do I Have To Report Airbnb Income on Taxes?

Generally, you must report Airbnb income on your tax return. When the platform sends you a 1099, it’ll also send a copy to the IRS. As a result, the agency knows how much income you should report and pay taxes on.

If your tax return doesn’t match IRS expectations, they'll send you a letter. If they confirm that you’ve underreported your income, you’ll have to pay what you owe, plus penalties and interest.

However, there’s one exception. If you use your property as a personal residence for at least 15 days per year and rent it out for fewer than 15 days, you don’t have to report the income it generates on your taxes.

How To Calculate Taxes on Airbnb

To calculate the taxes on your Airbnb, start by subtracting your tax-deductible expenses from your gross rental income to arrive at the net earnings from your Airbnb.

Next, figure out which taxes apply to you. That's usually income taxes and either net investment income or self-employment taxes. Finally, multiply the net earnings amount by each of their respective tax rates.

Does Airbnb Take Out Taxes for Hosts?

Airbnb will automatically withhold income taxes from your earnings when it’s required to do so. Typically, that’s when you fail to provide the platform with your taxpayer information.

Airbnb also has agreements with government agencies in some areas of the United States to collect and send occupancy taxes on your behalf. However, that's not the case everywhere, so don't take it for granted.

Do I Need To Do Taxes for Airbnb?

Generally, you do need to do taxes for your Airbnb. If you don’t report your rental income, the IRS will eventually notice that you haven’t fulfilled your obligations. Then they’ll come to collect what you owe and charge you additional penalties and interest.

Again, the only exception is when you qualify for the Masters exemption. If you rent out your personal residence for less than 15 days per year, you don’t have to report the income from it on your tax return.

How Much Do You Pay in Taxes for Airbnb?

The net profits from your Airbnb are subject to progressive income taxes, for which the tax brackets range from 10% to 37%. They may also be subject to either self-employment or net investment income taxes, for which the tax rates are 15.3% and 3.8%, respectively.

Disclaimer: The information on this website is not intended to provide, and should not be relied on, for tax advice.