Tax Consequences on Peer-to-Peer Accommodations
Nowadays many founders, entrepreneurs, and employees need a second source of income to supplement their monthly expenses. Airbnb has been a solution for many people looking for extra cash. With that extra cash comes tax consequences, and maybe tax advantages.
Unfortunately, income from rental property is taxable. But, you can report expenses related to that rental property and decrease your taxable income. Some of the expenses that are deductible include utilities, repairs, supplies, and cleaning services.
If the rental property is also your primary residence then a ratio formula is used to calculate the deductible expenses. That formula includes your home mortgage interest; mortgage insurance premiums, real estate taxes, and deductible casualty and theft loss. The formula also includes expenses related to repairs, insurance, and utilities related to the portion of the property that’s rented. Fair rental days are also taken into consideration.
Count the Days
On the upside, if you’ve rented your humble abode for less than 15 days during the year you don’t have to pay tax. If the income is not reported then the expenses related to the rented property can’t be deducted. The biggest caveat to note is that you must have resided in the property during the tax year.
Make sure you keep track of your rental days and personal use days. Airbnb may report the income to the IRS regardless of how many days you’ve rented the property. If you’ve rented your property for less than 15 days and you choose not to report the income on your tax return, but AirBnb does, the use of the platform may still cause an automatic generation of an IRS notice. Do not panic, and instead just keep proof of the number of days the property was rented which should substantiate the status.
Have a conversation with your tax advisor or contact me @ firstname.lastname@example.org.