10 Airbnb Tax Deductions

You have decided to use your real estate investment to generate extra income, and it’s working. Now what? As a revenue stream, you must report your Airbnb earnings as income on your tax return. Knowing about the available Airbnb host tax deductions can amount to significant savings on your return. Read on to learn more about the tax deductions for Airbnb.

Key Takeaways

• Taking advantage of all available tax deductions can increase your rental income.
• Sole-use properties have different available deductions than properties used for personal and rental purposes.
• Keep detailed records of all your expenses to simplify your tax preparation process and to validate any claims if you are audited.
• Make tax time easier by using an accounting software program.

Table of Contents

• 10 Airbnb Tax Write-Offs
• How To Claim Short-Term Rental Tax Deductions
• 5 Tax Tips For Airbnb Income & Expense Recording
• Enhance Your Tax Preparation Efficiency with Freshbooks
• Frequently Asked Questions

10 Airbnb Tax Write-Offs

You may be able to deduct certain expenses if you rent out your personal or additional residence for more than 15 days in a tax year. We’ve shared a list of potential short-term rental tax deductions below.

1. Depreciation 

You can recover some of the costs of your rental properties by taking a depreciation deduction. How much you can deduct depends on your basis in the property, the recovery period for the property, and the depreciation method used. 

As the IRS outlines, to depreciate your property, you must meet all of the following requirements:

• You own the property
• You use the property in your business or income-producing activity
• Your property has a determinable useful life
• You expect the property to last more than one year

You can only deduct the portion of the property you use for rental purposes. 

2. Appliances, Furniture, and Household Supplies

The cost you spend on furnishing your short-term rental property, including appliances, furniture, and household supplies, is fully deductible if your property qualifies as non-personal use. However, you can only deduct a percentage of the cost if you or your family spend time at the property. To calculate your allowable deductible percentage, multiply the percentage of rental days by the percentage of the area rented. 

For example, if you rent out your entire property, your area percentage is 100%. If you use your property for 90 days and rent it for 30 days, your rental percentage is 30 ÷ (90 + 30) or 25%. Rental days multiplied by total area result in a 25% deduction in this example.

3. Cleaning/Maintenance Fees

Supplies and fees related to the cleaning, maintenance, repair, and day-to-day use qualify as ordinary and necessary costs for your Airbnb rental property. The list of deductions in this category is long. It includes:

• Cleaning supplies
• Cleaner costs/wages
• Maintenance fees to contractors like insect and rodent exterminators
• Maintenance supplies like salt/deicer for icy walkways
• Repair items like window screens and caulking
• Fees for tradespeople like plumbers and HVAC technicians
• General supplies like toilet paper and soap

4. Marketing and Advertisements

You can deduct expenses for marketing and advertising fees considered ordinary and necessary, including social media, online, website, print, paper, radio, and TV advertisements. You can also deduct the cost of institutional or goodwill advertising if it is likely to gain your business in the future. While less common for home-share businesses, you can deduct the costs of providing meals, entertainment, or recreational facilities to the public as an advertisement or promotion of goodwill in the community. 

You cannot deduct advertising costs if any of the proceeds of the publication or event go to a political party.

You can also deduct the cost of taking professional pictures and videos of your Airbnb property as well as the fees to hire someone to write property descriptions on the hosting platform.

5. Mortgage Interest, Insurance, and Taxes

Mortgage interest, taxes, and homeowners or rental insurance are all potentially deductible depending on how you use your Airbnb property. You can deduct 100% of the mortgage interest, insurance, and taxes if you solely use your property for rental purposes. 

There are different rules if you use the property solely for personal use than if you rent out part or all of the primary residence for part of the tax year. If you use the property personally, you can deduct a portion of the mortgage interest based on a use percentage. 

If you rent out a section of the house and live in another part of the house,  you can deduct a portion of the mortgage interest as rental expense. 

The remaining amount is deductible on your itemized deductions. The same rules apply to insurance and property taxes.

Hotel tax, transient lodging tax, and occupancy tax are state taxes. You may be able to deduct some or all of these taxes depending on the location of your property.

6. Home Office Deduction 

You can claim a home office deduction for the portion of your residence used exclusively and regularly for your rental business. It must be a dedicated space and cannot be part of the rental space. You can deduct the percentage of the home office in square feet. For example, if your home is 2000 sq ft and your home office is 180 sq ft, you can deduct 9% of your home expenses and a business expense. This can include insurance, mortgage, utilities, repairs, and depreciation. Alternatively, you can use the simplified method and deduct $5 per square foot, up to 300 square feet.

Navigating the rules and regulations of tax credits and deductions can be easy when you have support. Learn how FreshBooks can take the pain out of tax preparation with this short video.

7. Commissions and Fees 

The commissions and fees Airbnb keeps for hosting your property in their portal, or the amounts you pay to property rental companies or vacation rental software solutions, are tax deductible. These fees are considered ordinary and necessary for the day-to-day running of a business like yours.

8. Professional Services

Eligible professional fees are also tax deductible. You can claim legal fees directly relating to the operation of your rental property, fees for resolving tax issues, fees for the preparation of tax forms for your business, and fees for unlawful discrimination claims. 

You cannot claim a deduction for personal professional fees like divorces or the preparation of your personal tax return.

9. Travel And Transportation Expenses 

Generally, you may be able to claim it if you are traveling for maintenance or management purposes. For example, if you go to check on your property once a year, those costs are deductible. Keep very detailed travel logs, receipts, and mileage details for any business-related travel expense claims.

10. Rental Losses

Rentals typically qualify as passive income, making this an important aspect of landlord tax deductions. You can deduct your rental losses against passive income. Generally, you cannot deduct passive losses against nonpassive income like wages or investment income. However, there is an exception. If you actively participate in the residential rental activity, you may be able to deduct a loss of up to $25,000 in a tax year against nonpassive income. Active participation can be work you personally do for the property or work you arranged for someone else to do, like a property management company.

All the losses you can’t deduct can carry forward indefinitely to future tax years, which means you can deduct this year’s passive losses against future years’ passive income.

How To Claim Short-Term Rental Tax Deductions

Depending on your tax filing status and eligible calculation methods, you can claim your short-term rental tax deduction in several ways.

Your rental income is non-taxable if you did not rent it for more than a combined total of 14 days at fair market value and used the property as a personal residence. This means you do not pay income tax on the rental income. You will also not be able to deduct any expenses. Make sure to still report the income and the deduction on your tax return. Airbnb will report the income to the IRS regardless of how many days you rent out the place.

The designations ‘personal residence’ and ‘rental property’ have different tax implications. Your property qualifies as a personal residence if you use it for a greater than 14 days or 10% of the total days you rent it to others. If your property is determined a personal residence, you can only deduct a percentage of the expenses relative to its use as a rental in square feet and days used.

If you do not use the property for personal use, you may be able to deduct 100% of the expenses associated with that property.

Report rental income on Schedule E (Form 1040) if you did not provide substantial services. Schedule E rental is not subject to self-employment tax.

You have a Schedule C rental if you provide services like concierge, in-use cleaning, tours, meals, and entertaining. Your income is subject to self-employment tax.

If you use your property personally, you can deduct part of the mortgage interest and property taxes on either Schedule E or Schedule C and the remaining amount as an itemized deduction. If you are married filing separately, both taxpayers must use itemized deductions. One taxpayer cannot utilize the standard deduction rate if the other uses itemized deductions. 

Understanding and leveraging rental property tax deductions is crucial for those engaging in short-term rentals. Deducting expenses associated with your property, such as mortgage interest and property taxes, can significantly impact your overall tax liability. Seek tax advice from a qualified professional if you’re not sure what your best method of filing is.

5 Tax Tips For Airbnb Income & Expense Recording

Maximize your taxable income and minimize your tax-related stress by following these income and expense-recording tax tips for Airbnb income.

1. Set Up A Separate Bank Account

It might seem like it’s harder to manage everything in two separate accounts, but it’s actually easier. Even if you have to pay extra fees, the costs associated with a separate account do not outweigh the benefits of having all your income and expenses in one place when it comes time to file your tax return. You may be able to offset a portion of your bank fees as a business expense.   

2. Keep Your Receipts 

Keep all your receipts related to your rental properties. Upload any hard copies and organize them while the purchase is still fresh in your mind. Record any details, including what address it is for, why you needed it if it was a replacement item, and if you charged the renter for a portion or all of it. Having organized records and receipts helps you validate your claim in case of an audit.  

3. Utilize Accounting And Automation Software

Using vacation rental accounting software, you can easily track your rental income, expenses, and tax liability. Good software will help you categorize your business expenses, service fees to vacation rental companies, and rental income, making filing a return and paying taxes for your rental business easier.

4. Use Only One Payment Processing Company 

Between the start-up and initiation costs, software subscriptions, and hardware rentals, payment processing costs can eat up your profits. You can save on fees and paperwork by utilizing one payment processing company. Measure the above costs of each company you qualify for and select the one with the best support and fee schedule for your needs. 

5. File Expenses and Income Automatically

Tax time is easier when you are organized. Account for your expenses and rental income automatically for your Airbnb rental business regularly. FreshBooks rental property accounting software has tools to help you track and categorize expenses so you can get back to managing your home rental business.

Enhance Your Tax Preparation Efficiency with Freshbooks

Now that you have more information about vacation rental business tax deductions, you can maximize your rental property income. The first step is establishing a process. By saving and organizing all relevant and necessary receipts in an account book or digital log, you’ll be closer to an effortless tax return.

FreshBooks property management accounting software can track and categorize expenses across different properties, helping you capture every eligible deduction for your small business. Try FreshBooks for free by signing up today to see how easy tax filing can be!

FAQs about Airbnb Tax Deductions

FreshBooks has summarized some frequently asked questions about filing your Airbnb business tax return for quick reference. Have a look!

Can I write off your Airbnb stay? 

You can write off your Airbnb stay if you are traveling for business and have unreimbursed expenses. You cannot write off an Airbnb stay if you are traveling for pleasure. 

What does Airbnb give you for taxes?

Following the reportable calendar, Airbnb must issue you Form 1099-K by January 31. You may also receive a form showing any additional taxes withheld, such as state-required occupancy tax. When applicable, they will issue a 1099-Misc for other reportable income, such as Airbnb settled resolutions and other miscellaneous expense. Airbnb will also send a 1099 form to the IRS to report your earnings.

What is Section 179 deduction for Airbnb? 

A Section 179 deduction allows you to take the full deduction for any asset in the first year rather than spread it out over the lifetime of the asset. To utilize this deduction, the asset must be purchased and put to use between January 1 and December 31 of the filing tax year.

How does Airbnb report income to the IRS?

Airbnb is a Third-Party Settlement Organization (TPSO) and must issue Form 1099-K to hosts who meet the $600 for calendar year threshold. You meet the requirement if you earned $600 or more from renting out your room through Airbnb in a calendar year. You provide your taxpayer information through Airbnb. They report your earnings to the IRS and issue you your earnings form.

What is 100% bonus depreciation on Airbnb?

The 100% bonus depreciation allows you to take the total percentage in the first year rather than spread it out over time. The eligible property must be a Modified Accelerated Cost Recovery System (MACRS) property with a useful life of 20 years or less. Starting January 1, 2023, the phase-out for the bonus depreciation begins, and you will be able to depreciate only 80% instead of 100%.

Does Airbnb take out income taxes for hosts? 

No, they do not take your income tax off your pay. Some states are required to collect occupancy tax and other state-regulated taxes. They will send out a form if you had any taxes withheld so you can deduct those.

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