In terms of side hustles, being an Airbnb host can be a dreamy gig. You get to turn unused space into income and the return is often lucrative. But there’s more to this side hustle than just renting out a bedroom—and there are big tax implications if you don’t do it right.
Airbnb income is taxable in the same way that rental income is. Since Airbnb regulations are still relatively new and evolving, be sure to check back regularly for changes. What you pay will vary depending on what country, province/state, and even what municipality your rental property is in. If you’re employed and have an Airbnb side hustle, then all that income will be counted together, and possibly push your tax bracket sky high.
Luckily, there’s a perfectly good way to make that tax slap hurt a little less…
Maximize your Airbnb tax deductions!
The golden rule of self-employed tax preparation is to make the most of your deductions. Every legitimate business expense you can claim lowers your taxable income, keeping more of your hard-earned money in your wallet. Rental properties have some unique deductions. You can claim portions of your rent/mortgage, much like you would for a home office. But you should also be aware of some of the smaller deductions that can result in big savings.
What expenses can I write off for Airbnb?
You are eligible to deduct a portion of your utilities, as well as expenses like insurance, cable, and internet. If you’re renting out a contained unit and don’t use any of it for personal space, then this is an easy one to calculate. But, things get a little trickier if you’re only renting out a portion of your space, such as a spare bedroom.
The exact deduction depends on how much of the property is rented and for how long. For example, let’s say you paid $2600 total in utilities for the year. You’re renting out a room in your house that’s equivalent to 30% of your space and you manage to rent it out for 219 nights, which is 60% of the year (219 / 365 = 60).
So, we have $2600 in total utility costs, of which 30% relate to the space rented 60% of the year. To figure out how much you can deduct, the calculation would look like this: 2600 x .30 x .60 = 468
In that scenario, it’s a deduction of $468 from your taxable income. Calculate your own percentages of space and year and plug in the numbers to find out how much for your space.
2. Cleaning and maintenance services
While some Airbnb hosts take care of tidying up their unit themselves, many hire on cleaners to make sure it’s in tip-top shape for the next guests. Those cleaning and maintenance fees are deductible expenses. Even if you are doing the cleaning yourself, the cost of cleaning supplies for your rental space is deductible. It might seem minor, but it’s exactly the kind of expense that adds up quickly. Plus, why wouldn’t you make the most of every dollar? Just make sure you keep your receipts, organize them well, and store them separately from any personal receipts to make it easy to claim at the end of the year.
3. Furniture and renovations
This is another one that can get tricky, and I’d recommend that you play it safe and bring it up with a professional. The gist, however, is that furniture and renovations that are for your rental space (in other words, not for personal use) are deductible. The problem is that furniture and renovations are usually intended to last multiple years, which means you can’t deduct the entire expense right away. For something complex like figuring out the amortization period, ask your accountant to help you.
4. Advertising and Host Service Fees
If you are renting out a room in your house on your own—as in, not using Airbnb or another hosting service–then you can claim back fees for printing out posters or any other advertising fees. But for those on the Airbnb platform, you likely won’t have many advertising expenses since they tend to do most of that work for you. However, Airbnb does charge a Host Service fee on every booking, which you should claim at tax time—don’t miss out!
5. Accounting and legal fees
Like with any self-employment hustle, Airbnb comes with its share of complexity. Often, the only way to get things truly right is to call in the professionals. The good news is that if you’re turning to an accountant or lawyer to help guide you through a tricky situation, those fees are deductible as a business expense. Even if you don’t use an accountant, the fee you pay for your tax preparation software is a deductible expense too.
The 15 day rule
Just one caveat before we’re done: If you rent out your space for 15 days (14 nights) or less, then you don’t need to report the income. But this also means that you can’t claim any of the expenses. Some casual owners choose to stay below that limit to keep things simple. Before you make that decision, do the math and weigh the benefits—you could be missing out on big profits by limiting your rental to only 14 nights.
Running an Airbnb isn’t exactly passive, but once you get your organizational flows in order, claiming those tax deductions can be easy. With just a bit of preparation, you can keep your income high and your tax burden low.