The rise of Airbnb, Vrbo, and other vacation rental services by property owners have made it a little more complicated for local governments to police and tax those rental properties. At the same time, though, these short-term vacation rentals represent a tax revenue opportunity for municipalities — one that should not be missed.
As a host, depending on your location, you may be required to collect local tax from your guests.
If you determine that you need to collect tax, it’s important that guests are informed of the exact tax amount prior to booking.
In some locations, hosts may have a collect and remit feature available to handle occupancy tax. Hosts should not collect occupancy taxes separately for those jurisdictions.
Occupancy taxes are another consideration that will be important to understand before beginning your journey into STRs. Platforms such as Airbnb and HomeAway have taken steps to ensure that hosts do not fall behind on remitting tax payments for STR income by deducting local county and city taxes on behalf of the STR host in certain cities – BUT NOT ALL. Visit the Airbnb tax link to determine appropriate tax rates for your city. Also, visit your state department of revenue office to determine whether or not there is a city partnership with the booking platform. In either case, tax reporting can be downloaded directly from the site to share with your accountant during tax time. If there is not a city partnership, hosts will need to be responsible for charging guests’ taxes and remitting the tax payments to the city. If there is a city partnership, taxes will be remitted to the city directly on behalf of the host.
If you’re a host who has provided your business tax ID and relevant tourist tax registration info, you may be eligible to collect taxes directly from guests by using Airbnb’s professional hosting tools.
If automatic occupancy tax collection and payment aren’t available for your listing, you can collect occupancy taxes manually with a special offer or the Resolution Center.
Note: Transient occupancy tax payouts won’t go through specific routing rules, and will only be sent to your default payout method.
Want some real tips? We’ve got the top 7 guiding tax tips for Airbnb owners so keep reading!
1. Keep Flawless Records Of Rental Periods
You’ll have a much easier time with tax issues on your short-term vacation rental if you treat it as a business from the get-go and keep meticulous records.
If you rent out your place for two weeks or less, keep careful track of both rental days and those days you used the residence yourself. If you rent for longer than the 14-day exception period, detail the dates precisely so you can properly divide out personal and business expenses, like mortgage interest.
2. Document All Business Expenses
You are entitled to deduct all “ordinary and necessary” expenses to operate your rental business. Like the “B&B” in Airbnb, think of your rental as a bed-and-breakfast. If you buy new towels for your guests, repaint the guestroom or put a bottle of wine on the table for incoming guests, you can deduct these expenses from your rental income.
By keeping clear records and recording all money you spend on the business, you won’t have to go back through credit card statements for proof for the IRS.
3. Apportion Mortgage Interest And Taxes If You Rent Room Only
If you rent out a room, rather than the entire house, for over 14 days, you pay taxes on the rental amount and you can take business expenses. However, you can’t deduct 100% of expenses like mortgage interest and property taxes. These must be apportioned between personal and business use of your residence.
4. Fill Out Form W-9 Taxpayer Identification Number
Airbnb, HomeAway, VRBO, FlipKey, and similar companies must withhold a full 28% of your rental income if you don’t provide them with a W-9 form. In most cases, your effective tax rate will be lower than 28%.
There’s no reason to let the tax authorities hold your overpayment all year, so file that W-9. Once you do, the rental company can reduce the withholding percentage, giving you immediate access to the maximum amount of rental income.
5. Deduct The Guest-Service Or Host-Service Fees
Airbnb, FlipKey, and other short-term rental companies usually charge a percentage fee, called a guest-service fee or a host-service fee that is taken off the top of the rent that guests pay. When these companies send you and the IRS a 1099 form reflecting your house rental earnings for the year, it includes the amount of service fees.
If you rented out your home or apartment for more than 14 days in the year, you can and should deduct this fee from your reported rental income. Since 100% of the fee was directly related to the rental use of the property, you can deduct the entire amount paid.
6. Learn About Applicable Occupancy Taxes
Some state and local governments impose occupancy taxes on short-term rentals. These vary widely from one jurisdiction to the next, from the name of the tax—hotel tax in some states, transient lodging tax in others—to the rates and rules.
In many cases, the host is required to collect the occupancy tax directly from renters and submit the money to the tax authority, but some companies, like Airbnb, collect and submit the taxes in certain cities and states.
7. Pay Self-Employment Taxes
If you are self-employed, you have to pay self-employment taxes, as well as income taxes. Self-employment taxes cover Social Security and Medicare contributions for the income you make when you are in business for yourself.
When you rent out your home, make bookings and provide amenities, like coffee or breakfast, the IRS may treat you as being self-employed in the vacation rental business.
There’s plenty to get educated on when you start your own Airbnb, taxes are something you’re better off being well aware of at the start. Take these tips into account and you’ll be navigating taxes as an Airbnb host with ease.
Still want some extra support? Get in touch with us and we’ll help address your questions
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