Tax Deductions for Airbnb Owners
If you’re an Airbnb host, you should know that taxes for home-sharing businesses are similar to real estate rentals, but there are some differences. Airbnb hosts are typically considered rental property owners rather than small business owners for tax purposes.
The way Airbnb hosts deduct expenses differs depending on whether they rent out their entire home or just a portion of it. Some deductions must be calculated based on the number of rental days and the portion of the rented home.
1.Airbnb Tax Deductions: Short-Term Accommodation vs. Residential Rental
Short-term lodgings, such as hotels, motels, and guesthouses, have significant advantages in claiming tax depreciation at a rate of 4% if construction began after February 27, 1992. Unfortunately, Airbnb is not classified as short-term lodging. It is instead classified as a standard residential investment property.
Section 40 Plant and equipment such as your rangehood, air conditioning units, hot water systems, and similar items are depreciable if purchased brand new from a retailer or as part of a new renovation. Unfortunately, due to recent legislative changes in 2017, used plants and equipment are depreciable.
2. How Airbnb Hosts Take Deductions
You can deduct expenses for the use of a home or apartment that is rented out.
Some expenses may be limited based on the number of days your renters stay in your home and the amount of rental space you have. You should report the number of days you rented or a portion of your home for a reasonable rental price.
If you only rent a portion of your home, you can deduct only the portion of your expenses that apply to the rented space and only for the days you rented it at a reasonable rental price.
3. What Airbnb costs are tax deductible?
3.1 Cleaning supplies and services
Fortunately, all cleaning products are expenses that can be deducted when filing taxes. But did you know that cleaning services such as laundry fees and turnover services can be deducted? So all the more reason to hire a cleaning service for the dirty work. You can set your Airbnb pricing or charge a cleaning fee to cover the cost of cleaning services. Furthermore, owners and hosts who use cleaning management software and apps to coordinate services can deduct the subscription fees.
3.2. Marketing expenses
If travelers are unaware of its existence, it will likely be buried beneath all the other listings in the area. You can’t just build it and hope people will come; you must market your property.
Marketing costs add up quickly! Everything from hiring graphic designers to create advertisements to paid social media advertising fees is tax deductible and should be tracked throughout the year.
3.3. Insurance, property taxes, and mortgage
You must have vacation rental insurance if you rent your home to strangers. You put in a lot of effort to get that investment property up and running. Unfortunately, more than Airbnb insurance is needed to protect your business completely. To begin with, the payout time is extremely long. Second, insurance will only cover lost income if your vacation rental is available for repairs (i.e. if a renter causes a fire). Though insurance can be costly, claiming it as a tax deduction offsets some of the cost at the end of the year. Just make sure to save your bills so that you can deduct them.
4. Airbnb Tax Deductions and Capital Gains Tax
If you use your primary residence to rent out some rooms on Airbnb, the ATO has stated that you will not be completely exempt from the principal residence capital gains exemption.
Even if you use a portion of your property to generate accessible rental income, you will only be eligible for an amount of the main residence CGT exemption. This means you’ll have to pay capital gains tax on a portion of any capital gain (profit) realized when you sell your primary residence.
5. Is Airbnb a good tax deduction?
How you file your business taxes determines the amount you can deduct for Airbnb expenses. If you only rent your home, you must report your taxes on Schedule E of Form 1040. If you provide services to Airbnb guests, such as dry cleaning or breakfast, you are taxed and can deduct your expenses as a small business. In this case, your business income is reported on Schedule C.
The main distinction between these two forms is that rental income reported on Schedule E is considered passive income for tax purposes, and you cannot take a loss for the year using deductions. Because business owners (reporting on Schedule C) are considered to be more risky, they can deduct a business loss from their income for the year.