Despite being a lucrative goldmine of opportunity, with profit comes the taxman. And whilst none of us are excited about saying farewell to a portion of our hard-earned profits, the alternative can be much worse: audits, avoidable legal and accounting expenses and infuriating headaches.
Tax authorities are still grappling with how to tax the “sharing economy”, and the sand is yet to set in a way that provides a level of certainty that hosts are looking for in maximizing their profitability whilst minimizing their tax obligations.
However, gaining a basic understanding of how to navigate your tax responsibilities on Airbnb as well as understanding ways to maximize legitimate tax deductions is still within your reach.
To begin with, let’s run through some Accounting 101: Tax obligation = tax dues – tax deductions. But what are the applicable Airbnb tax dues owed and what deductions can you make for Airbnb expenses incurred?
Well, when it comes to Airbnb your tax obligation =
Not all taxes will be applicable to everyone, and different hosts are entitled to different deductions. It is important to be familiar with each to understand your personal circumstances and tax obligations.
The following is a run through of each of these elements and the things you need to be familiar with to maximize your Airbnb earning potential.
Before diving into it, it’s important to remember that tax advice is complicated, and you should do your own due diligence when receiving advice. Airbnb hosts should consult a tax professional for assistance in reporting their income.
Tax Information you Provide to Airbnb
Tax Forms Provided to You From Airbnb
Depending on your account status, the taxpayer information you’ve submitted to Airbnb, and other factors, you may receive a tax form from Airbnb. Below is a summary of the different categories to whom Airbnb will issue tax forms:
Local taxes go by many names. Some of the more common ones are Occupancy Tax, Lodging Tax, Room Tax, Sales Tax, Tourist Tax and Hotel Tax.
It is a tax that is assessed and levied by a local authority such as a city, state or country. Not every locality will have applicable local taxes, however many do.
Occupancy tax rates and rules vary by city, county, state, and country. They’re generally owed on the accommodation price plus any fees for other items, like cleanings or extra guests. In some places, occupancy tax is required on a per person, per night basis. There are typically long-term stay exceptions that exempt reservations over a certain number of nights. Occupancy tax is generally paid by the guest, but the obligation to remit the taxes to the government usually falls on the host.
It is therefore important to familiarize yourself with any local taxes that may exist within your area. The best way to do this is to check your city or county government website.
Where they exist, they typically apply to rentals of 30 or fewer days, and average 12% of the rental revenue. In many instances, hosts are required to register with their local city or county. Sometimes, a business licence will also be required before collecting local taxes.
Airbnb take responsibility for collecting local taxes on behalf of hosts only in specific locations. Currently, these include France, India, Mexico, Netherlands, Portugal, Switzerland and the United States (with the exception of Delaware, Georgia, Hawaii, Indiana, Iowa, Kentucky, Massachusetts, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Ohio, South Dakota, West Virginia and Wyoming).
The Airbnb website has detailed information on the relevant local taxes it collects for each of these locations.
For these areas, Occupancy Tax amounts will appear as a line item on your listing’s public page, and you should not collect taxes separately for those jurisdictions.
If occupancy taxes are not being collected and remitted on your behalf, Airbnb will let you know if and when an occupancy tax related feature becomes available for your listing.
For hosts required to collect their own local taxes, it is their responsibility to collect the local tax direct from guests themselves.
If you are required to collect local taxes and do not live within any of the jurisdictions in which Airbnb collect the occupancy tax on your behalf, it is your responsibility to collect these taxes from your guests.
Hosts have three options for doing so, and it is at the discretion of hosts as to how they wish to collect these taxes. Their options are:
Incorporating them into their listing’s nightly price
Adding it to a Special Offer
Asking guests to pay it in person upon arrival
In some circumstances, exceptions for reservations over a certain number of nights will eliminate the need to collect any relevant local taxes. You should research and familiarize yourself with any circumstances that might apply to you.
Value Added Tax (VAT)
Valued Added Tax (or VAT) is a tax assessed on the supply of goods and services. Depending on the laws of your local jurisdiction, VAT may also be included as a tax deduction in addition to the 3% service fee.
The service fee presented to you by Airbnb will include VAT when applicable. VAT or GST is deducted from your payout and is based on the total host service fee for a reservation. If you change your reservation, VAT or GST adjusts to reflect any change in the service fee.
A VAT invoice is provided whenever VAT is assessed on Airbnb service fees. An invoice is finalized and issued when a reservation is accepted, and includes your information (name, address, etc.) as you entered it in your Airbnb account. Airbnb is not able to modify a VAT invoice after it has been issued.
If you have a VAT ID number registered with the European Commission, you may want to associate that number with your Airbnb account (this option is not available in Ireland). This will include your VAT ID on Airbnb VAT invoices created after the VAT ID is added.
If your VAT ID number can’t be verified and you determine that you do need to self-assess VAT on Airbnb’s service fees, Airbnb encourage you to consult a tax advisor for assistance.
Tax deductions for Airbnb hosts fall into one of two categories:
Expenses incurred for the shared purposes and benefits of yourself and Airbnb guests. They arise in instances where an Airbnb dwelling is either rented out on a part-time basis (with you or others living there the remainder of the time), or where only part of your space is rented out (with you or others living in the rest of the space too).
The distinction in deduction type is important as it determines the size of the deduction you’re able to claim for individual expenses.
Below are some common larger expenses you’re able to claim as full deductions:
Airbnb host fees
Guest bedding and linen
Food for guests
Mileage for Airbnb activity
Remember selecting what kind of place you are listing when first setting up your listing? This was where you specified whether you were renting out your entire home, a private room or simply some shared space.
Partial tax deductions exist where the expense incurred provides benefit to both you and your guests.
Both the amount of space you rent out of your home as well as the amount of time you rent your home for will determine just how much of a deduction you’re able to claim.
There are three scenarios where partial deductions may be claimed. Here is a summary of the formula for each:
Let’s also take a look at how to determine the partial deduction that’s applicable for each…
Entire home + Part-time rental
When you rent out your entire place on a part-time basis and live in it for the remainder of the time
- Sample Scenario: Hosts who rent their entire home for a whole month while overseas on vacation
- Formula: Expense x Proportion of year rented
- Example: If yearly rent is $1000 and throughout the year you rented your entire place for 30 nights, then the deduction = $1000 x (30/365) = $82.19
Shared / Private Room + Full-Time Rental
When you rent out a shared / private room on a full-time basis but still live in your home the entire time too
- Sample Scenario: Hosts who live year-round in their home but also offer an entire room of that home to Airbnb guests year-round too
- Formula: Expense x Proportion of home rented
- Example: If yearly rent is $1000, you live in a 100 square foot apartment and offer Airbnb guests a 25 square foot space within your apartment, then the deduction = $1,000 x (25/100) = $250
Shared / Private Room + Part-Time Rental
When you rent out a shared / private room on a part-time basis but still live in your home the entire time too
- Sample Scenario: Hosts who list a room within their apartment on Airbnb and otherwise use that space for other purposes in the absence of hosting Airbnb guests
- Formula: Expense x Proportion of year rented x Proportion of home rented
- Example: If your yearly rent is $1000, you Airbnb your place for 30 nights of the year, and live in an apartment of 100 square feet of which you offer Airbnb guests a 25 square foot area within that space; then the deduction = $1,000 x (30/365) x (25/100) = $20.55
Airbnb state that tax advice is complicated, and you should do your own diligence when receiving advice.
Need professional help understanding your tax obligations and opportunities to maximize your Airbnb earning potential? Explore financial services service providers able to help: