Summertime means profit time if you rent out your place for tourists. Still, it is important to watch out for some tax issues. Here is an easy list of things to have in mind when organizing your earnings as an Airbnb host.
1. The 14-days rule
Renting out the whole place
This is the most important rule if you want to rent out your place in Airbnb. According to this rule, you don’t pay tax on income you earn from the short-term rental, as long as you:
- Rent the property for no more than 14 days during the year AND
- Use the vacation house yourself 14 days or more during the year or at least 10% of the total days you rent it to others.
So, watch out! Because of reporting laws, rental companies may report to the IRS all income you receive from short-term rentals, even if you rent for less than two weeks. If this happens, and you don’t include the income on your tax return, you may hear from the IRS. But, no need to panic! You’ll simply need to prove the income qualifies for the 14-day exception.
Renting out a room
The 14-day rule applies in the same way if you rent out a room. Fourteen days or less, you don’t even have to report the income on your taxes, but you cannot take any deductions either.
2. Local and Value Added Taxes
If you determine that you need to collect tax, you can usually either add it within a “Special Offer” or ask your guests to pay it in person. In each case, it’s important that guests are informed of the exact tax amount prior to booking.
Value Added Tax
If your country of residence is part of the European Union or China, you may need to assess Value Added Tax (VAT) on the services you provide. In fact, Airbnb encourages hosts to consult a tax advisor for further assistance.
3. Treat it like a business
Did you know that if you buy new towels for your guests, repaint the guestroom or put a bottle of wine on the table for incoming guests, you can deduct these expenses from your rental income?
This is more than good reason to keep track of all money you spend on the business. This way, you won’t have to go back through your credit card history for proof for the IRS.
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