Thinking of being an Airbnb host? First, check your town’s regulations; the rules vary. Then there are taxes — federal, state and city.
“If you don’t handle the rental income properly on your tax return, you might end up with high penalties and fees from the IRS,” says Joshua Zimmelman, president of Westwood Tax & Consulting in Rockville Centre.
Many people mistakenly think they can deduct 100 percent of their household expenses, such as mortgage interest and property taxes, or rent, against their Airbnb income, explains Abby Eisenkraft of Choice Tax Solutions in Melville.
If you have a spare room that’s always used as an Airbnb rental (never as a guest bedroom for family or a playroom for the kids), you must apportion the percentage of expenses that are deductible, she says. If the room’s square footage is 10 percent of the entire house, you can deduct 10 percent of your allowable expenses.
If you rent your entire house, but move back in when there are no Airbnb guests, again, you cannot deduct all of your expenses, Eisenkraft says. You’ll need to calculate the percentage of days booked with Airbnb vs. days of personal use.
But if you rent your property for fewer than 14 days during the year and use the property yourself for more than 14 days, then that rental income is exempt from taxation. “This rule applies to rentals of the entire property, or just one room,” says Zimmelman.
Rent a room, no frills or extras, and you’ll likely use Schedule E to report your rental income and pay tax (after deducting expenses). But if you also include meals, maid service, and transportation, you’ll file Schedule C and pay self-employment taxes in addition to income tax.
Truth is, Airbnb complicates your taxes. Says Michael McCord, managing partner with McCordial & Co in Raleigh, North Carolina, “For many, the headaches may outweigh the extra cash in their back pocket.”