Taxes 2023: What To Know If You Own an Airbnb or Other Rental Property
Owning an Airbnb or other rental property can be a good investment, especially if the property is located in a prime location.
According to one report, the average Airbnb host earned more than $13,800 ($1,150 a month) in 2021. For many people, the extra income earned from renting out their property is key to offsetting the rising cost of living — and reducing money-related stress.
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While rental properties can be profitable, any income earned from them also might be taxable. This means that, in most cases, you won’t be pocketing all of that cash. How long you rent out the property and where it’s located can both affect the types of taxes you pay.
If you own a rental property or plan to be an Airbnb host, here’s what you need to know about paying taxes.
Also see signs you need to file an extension.
IRS Rules on Rental Property
“The Internal Revenue Service (IRS) requires that all rental property owners pay taxes on their income from the property,” said Shaun Martin, owner and CEO at The Home Buying Company. This includes short-term and long-term rentals, such as Airbnbs and other vacation properties.
Depending on your circumstances or business model, it might be necessary to file a separate tax return for your rental property. You also might need to file “quarterly estimated payments if your taxes do exceed a certain amount,” Martin added.
The tax rules do change, however, so it’s a good idea to review them every so often. This is especially important if you’ve never rented out a property before or if you’re adding another property to your rental portfolio.
Since keeping up with the tax laws can be both challenging and time-consuming, you may want to consider hiring a certified accountant. A professional can work with you on filing your taxes, find possible tax breaks and help you avoid tax-related penalties or other complications.
14-Day Rule on Rental Properties and Airbnbs
If you rent out your property for no more than 14 days during the year, you may not have to worry about including that income on your taxes.
The 14-day rule applies to any short-term rental that you own and use as your personal property while renting it out.
“Under this rule, you don’t report any income you earn from the short-term rental as long as you use the property yourself for 14 days or more each year and you rent the property for no more than 14 days during the year,” said Alex Capozzolo, co-founder at Brotherly Love Real Estate.
This rule also applies if you rent out only one room on your property for a maximum of 14 days. It’s important to note that the 14 days do not have to be consecutive. Also, you won’t be able to deduct any rental expenses from that room when you file taxes.
Types of Taxes on Rental Properties
It’s important to understand your tax filing requirements when renting out property. While not all of these will necessarily apply to you, here are the main types of taxes you could be responsible for:
- Transient occupancy tax, hotel tax or lodging tax: Transient occupancy tax is only for properties located in California, but you could still be subject to lodging tax even if you live somewhere else in the U.S. This tax is primarily meant for short-term rentals of under 30 days.
- Property taxes: If you own a property, even if you primarily use it as a rental, you’ll need to pay property taxes on it. The exact amount can vary by location and property value.
- State or local taxes: Some states also charge state or local property taxes, meaning the local government sets the tax rate. Some counties and cities also have their own taxes.
- Self-employment tax: “If you’re operating your rental property as a business, then you may also need to pay self-employment taxes in addition to regular income taxes,” Martin said. You also might need to pay Medicare and Social Security taxes on your earnings.
Reporting Income From an Airbnb or Other Rental Property
If you’ve earned money on your rental property, you’ll need to report it on your federal — and possibly state — tax return. There are several ways to do this:
- File Form 1040. Whether you’re renting out an entire building or a room, you’ll need to file a Form 1040 or 1040-SR. You’ll typically use a Schedule E to report any rental income, expenses or depreciation for each rental. If you rent out property as part of your business, you may be required to file a Schedule C.
- File Form 1040 for non-US rental properties. If you have a rental property located outside the United States and are either a U.S. citizen or permanent resident, you still might need to file Form 1040. You also might be responsible for paying taxes in the country where your property is located.
- File Form W-8 ECI. In most cases, non-US individuals are subject to a 30% withholding tax on rental property income. Airbnb also requires non-US hosts to report their earnings using Form W-8 ECI. If you don’t, Airbnb may withhold 30% from your total earnings. Airbnb also will file Form 1042-S to report rental income from its hosts.
- Fill out a W-9 Form for Airbnb. Airbnb has an entire page dedicated to U.S. income tax reporting. When you sign up as an Airbnb host, you’ll typically need to complete a W-9 form. At the end of the year, Airbnb will send you a 1099-K, or “Payment Card and Third Party Network Transactions,” that shows what you’ve earned. If you don’t receive this form, you should be able to find this information in your “Earnings Summary.”
As an Airbnb host, you are required to disclose the appropriate tax-payer information. If you do not, Airbnb could prevent you from taking on new reservations and stop your payouts.
It’s wise to keep any records of your rental’s profits and losses throughout the year — whether you receive tax forms or not. That way, you’ll have the right documents if the IRS ever audits you. Collect any invoices or receipts for home improvements, too.
“You will have an easier time with your taxes if you maintain efficient records,” Capozzolo said. “Treat it as a business and keep track of your rental days. If you rent for longer than 14 days, detail out the dates properly so you can divide the personal and business expenses.”
Deductions on Airbnbs and Rental Properties
Before you file taxes, you may be able to deduct certain expenses from your rental income. According to Cam Dowski, of WeBuyHousesChicago.Co, these expenses could include:
- Repair costs
- Property tax
- Mortgage interests
You also could deduct certain business expenses, provided they’re related to your Airbnb or rental property.
“This can include maintenance and repairs, cleaning costs, insurance and advertising fees,” said Jon Sanborn, co-founder of SD House Guys and a licensed Realtor.
It also can include a portion of your utilities and service fees (for Airbnb rentals).
“You can also claim depreciation on your rental property,” Dowski added. “This allows you to deduct a certain portion of the cost of the property over time. This helps reduce the overall amount you will need to pay in tax.”
Keep in mind that there are certain depreciation rules.
“Your rental property or Airbnb may depreciate over time due to wear and tear or obsolescence,” Sanborn said. “The IRS allows you to claim depreciation as an expense on your taxes. However, there are specific rules and guidelines that you must follow in order to do this.”
When in doubt, speak to a tax professional or accountant about your situation.
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