Renting out your property is one of the best ways to generate passive income, the holy grail of money-making strategies. Though it’s typically associated with real estate investments, Turo lets you pursue it with your car instead.
Since it’s easier to secure a vehicle than a home, hosting on Turo is an attractive side hustle for many, especially since car rental costs are up nearly 50%. However, earning extra income almost always means additional tax obligations, and Turo is no exception.
This Turo tax guide will explain those responsibilities and how to stay on of them throughout the tax year, so you won’t have to worry when it’s time to file your return.
Turo is a peer-to-peer car-sharing platform that allows individuals to rent their personal vehicles to others. Users can choose from a diverse selection of cars available in their location and booking window, and rent directly from the car owner.
Listing your car on Turo is a lot like listing your apartment on Airbnb. In both cases, the Internal Revenue Service (IRS) considers it renting out your personal property and classifies your earnings as rental income.
As a result, any profit you earn will be taxable. That refers to any income you have left after writing off your allowable expenses. The amount is subject to ordinary income taxes, for which federal rates range from 10% to 37%, and state rates vary.
While renting is typically a passive activity, the IRS will consider it a business if you “materially participate” in the operation. In that case, your net profits will also be subject to the self-employment tax, which is a flat 15.3%.
Material participation in a rental is an extremely complicated concept. Don't try to figure it out by yourself. It has such significant implications for the tax treatment of your Turo activities that you can’t afford to get it wrong.
If you plan to be a Turo host, speak with a Certified Public Accountant (CPA) to get help making that determination. Turo isn’t something you should try to file taxes for without expert assistance.
In addition to affecting which taxes your net profits are subject to, whether or not you materially participate in your Turo activities determines which tax forms you need to report your income and expenses.
Hosts who don’t qualify as material participants should report their activities on Form 1040, Schedule 1. Your gross income should go on Line 8, and your expenses should go on Line 24(b).
Hosts who do qualify as material participants should use Form 1040, Schedule C instead. Use Line 1 to report your gross income and Lines 8 through 27 for your tax-deductible business expenses.
Another advantage to renting your property is that you can often show a net loss on paper while taking home a cash profit. That’s primarily due to the depreciation deduction, a non-cash expense representing wear and tear on your asset.
If you earn a net loss through your Turo rental activities, you may be able to net the amount against other passive income sources. That would reduce your taxable earnings, saving you money.
However, the At-Risk and Passive Activity limitations may restrict the losses you can deduct. You must complete Form 6198 and Form 8582 if you have a net loss from your Turo activities to determine that.
You should also be aware that losing money consistently from your Turo business could cause the IRS to recharacterize your activity as a hobby. Navigating these situations is tricky, so talk to your CPA if your Turo tax deductions exceed your income.
Whether you report it on Schedule 1 or Schedule C, you must claim the gross rental income you earn through Turo on your tax return. Fortunately, keeping track of it is usually pretty straightforward.
In fact, Turo does most of the work for you. You can create a comprehensive Earnings report from the Turo app. Just navigate to the Business tab and tap Earnings. You can do the same from the website by clicking Earnings in the host drop-down menu.
The report should display your gross income for the date you select, including all adjustments, such as cancellations. Alternatively, you can review your transaction history or request an unofficial tax summary for a given year.
In addition, Turo will send you a Form 1099-K if you meet specific activity requirements on the platform. For tax year 2023, that means earning at least $20,000 in gross income and completing 200 or more transactions.
If you qualify, you should be able to access an electronic copy of your Turo 1099-K form by January 31. Just be sure you give your tax information to the platform before the cutoff date, which is usually a couple of weeks before.
Just as important as reporting your rental income is claiming your allowable Turo tax deductions. These are “ordinary and necessary” expenses that the IRS lets you “write off,” reducing your taxable profit and annual tax bill.
It should be no surprise that most of these will be vehicle expenses. For example, some of the most common include the following:
Gas or other fuel costs
Car washes and cleaning
Interest on an auto loan
Miscellaneous supplies for guests
Of course, these aren’t the only expenses you can deduct from your rental income. For example, you can also likely write off things like Turo fees, marketing costs, and the professional fees you pay your tax expert.
Notably, third-party insurance plans on your vehicle are generally not tax-deductible for Turo hosts. Some of the Turo fees you pay go toward the platform’s Protection Plan, which covers your car during its rental periods.
The IRS actually lets you choose between two different methods of writing off your vehicle expenses as a Turo host. Generally, you should choose the one that grants you the highest deduction and minimizes your tax bill.
Here are the options:
Actual expense method: This requires that you track every mile your car drives during the tax year, including rental and personal trips. You must multiply the percentage of miles the car drove while rented by your total vehicle expenses for the year to get your deduction amount.
Standard mileage method: This requires that you only track the miles your car drives while someone’s rented it. Multiply that number by the IRS standard rate (65.5 in 2023) to get your deduction amount. Using this method, you may need to add back certain costs not covered by the standard rate, such as interest on your auto loan.
In some circumstances, there are limits on which method you can use. For example, Turo hosts who lease more than five vehicles at once must use the actual method, and using the standard method for a car you lease locks you in until the lease ends.
If you hire a CPA to help with your Turo taxes (which we strongly recommend), get their input on writing off vehicle expenses. They’ll help you choose the best method and calculate your deduction.
Turo doesn't withhold taxes from the rental income you earn on its platform, but tax agencies don’t want to wait until tax season to collect what you owe. As a result, they require you to make quarterly estimated tax payments.
Aim to pay 25% of the ordinary income and self-employment taxes you expect to owe by the following dates:
January 15 (of the following year)
Of course, it can be challenging to predict the taxes you'll owe in advance. Fortunately, the IRS offers two ways to avoid penalties: pay at least 90% of the taxes you owe for the current year or 100% of the taxes you paid in the previous year.
If you keep track of your income and expenses, make your quarterly estimated tax payments, and hire a CPA to help with your Turo tax obligations, you should have everything you need when it’s time to file.
To avoid late filing penalties, submit your return or extension by April 15. The extension gives you an extra six months, pushing the due date to October 15. However, it doesn’t change any of your estimated tax payment deadlines, so don’t miss those!
Generally, the best way to file your return is to let your CPA handle it. Assuming you have good bookkeeping records, they’ll be able to complete the process with minimal input and involvement from you, and the cost will be deductible on next year’s taxes!
Another great way to make filing your Turo tax return easier is to use Found, a business bank account built to streamline everything tax-related for people who are their own bosses, like Turo hosts.
Found’s auto-save feature sets aside the right amount for taxes, every time you get paid from Turo. Every purchase you make with your Found card is categorized, helping you find write-offs. You won’t miss a deduction—or a chance to save. Found updates your tax estimate in real time. That way, you’ll know what to expect when payments are dueNo more scrambling or surprises at tax time.
Found has made it easy to work with your accountant or financial pro, too. With accountant access, you can easily share your Found account activity, reports, and more with your accountant, making tax time even easier.
In fact, you get started for free! Sign up for Found today and try out its powerful features!
If you meet the activity requirements for a 1099-K form in a given tax year, Turo will send copies to you and the IRS. The document displays your gross income so both parties know how much you earned.
To receive a 1099-K in 2024, you must have earned $20,000 and completed 200 transactions on Turo during the 2023 tax year. Starting in the 2024 tax year, you’ll only need to receive $5,000 on the platform to get one.
The net profit from your Turo activities is considered rental income, which makes it subject to federal and state ordinary income taxes. If you materially participate in the operation, making it a business, it’ll also be subject to self-employment taxes.
Federal income tax rates range from 10% to 37%, while state tax rates vary significantly. Meanwhile, the federal self-employment tax is 15.3%, and there are no state-level equivalents.
Turo will give you a 1099 form if you meet the income and activity thresholds for a given tax year. It will give you a 1099 for 2023 if you earned at least $20,000 and completed more than 200 transactions during the tax year.
The IRS originally wanted to lower the threshold to $600, but it has delayed the rule change to give people time to adjust. In 2024, the threshold will drop to just $5,000 in gross income through the platform.
Disclaimer: The information on this website is not intended to provide, and should not be relied on, for tax advice.
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