Taxes for Airbnb Hosts
Ready to rent out your Airbnb for some extra cash? Before you get started, make sure you understand what your tax responsibilities are and avoid paying a big bill come April.
State and local taxes can vary a lot depending on where you live, so it's extremely important you take the time to figure out what you'll owe in your town. This is especially important if your rental is in a different location than your primary residence.
For example, if you live in Massachusetts or Vermont, you'll need to report your earnings if you make more than $600 in a year.
Other states require an occupancy tax that's paid upfront by your guests, but you're required to report that amount to the IRS.
So how do you know what you'll owe? Try starting at the IRS website and finding your specific state laws. If you're still confused it might be worth going to talk to a local expert to make sure you fully understand the laws.
Federal taxes are a little simpler to figure out since they're the same for everyone. If you earn over $20,000 or you have over 200 transactions in a calendar year, then your rental counts as taxable income and you should get a 1099-K from Airbnb.
You should get the form by the end of January, but if you don't, don't assume you don't owe. Be sure to contact Airbnb to make sure you get the right documentation or you could risk getting audited by the IRS.
You may also have to pay additional federal taxes if your rental property counts as self-employment. You'll fall into this category if your rental is only used as a rental (i.e., you don't live there and you don't use it as a vacation home).
The same is true if you provide "substantial services" to your guests. Those might be things like a continental breakfast, personal tours, cooking classes or anything else that makes your Airbnb seem more like a regular bed and breakfast or hotel.
The number of days you rent out your home can work in your favor when it comes to federal taxes.
That's thanks to the Masters Exemption, a tax exemption that says if you rent your home for 14 days or less a year, then you can do so without reporting income. Named after the Masters golf tournament in Augusta, Georgia, this is a great option if you just want to rent for a few weekends or if you want to cash in on a big event.
Don't forget to withhold
If you know you're going to pay a significant amount of taxes on your rental income, you can choose to withhold that money just like you would with a normal paycheck. That way you're paying every month instead of worrying about saving and paying it all at tax time. If you don't want to withhold your taxes through the Airbnb platform, you may be able to do it through a property management company or software.