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Airbnb Tax Rules You Need to Know

Airbnb Tax Rules You Need to Know

Airbnb has created a unique platform where individuals are able to rent out a spare room within their home or apartment, or the entire dwelling, to visitors. The guest receives a homelike atmosphere that is often more affordable than staying at a hotel, while the host is able to charge a premium for their space in the big city and gain additional income. In the eyes of the Internal Revenue Service, there are guidelines which affect this additional income and how it needs to be claimed on your taxes.

Before you think about renting your space with Airbnb, it is important to understand the local laws on this issue. For the city of Chicago, there is currently no specific restrictions for individuals renting out single rooms or small apartments as vacation rentals. Details such as vacation rental licensing, zoning ordinance rules, bed-and-breakfast licensing, and Hotel Accommodations Tax, currently only apply to any residence that is six sleeping spaces or larger. However, over the past few years several local lawmakers have been working to change that. Based on the 2011 ruling, individuals who choose to rent out their space are subject to inspections, are required to carry insurance, and must pay a $500 licensing fee every two years. Despite the fact that the penalty can be up to $3000 in fines, less than 5% of dwellings have registered at this time.

According to the IRS tax code, a short term rental is deemed as one that is paid for no more than 14 days per year. If you were to rent your spare bedroom through Airbnb for this number of days than all income you earned would be tax-free. You may also rent your property for tax-free if the home is primarily used as your personal residence for more than 10% of the number of days which it has been rented. For those individuals who choose to rent out their spare bedroom and live in the rest of their property, then you are not required to claim any income that you receive as an addition in your tax filing.

For those individuals who choose to rent an unused apartment or other type of dwelling in this manner, you are obligated to report it to the IRS as rental income under Schedule E. However, there is an opportunity to tax deduct specific expenses related to your rental. The rules set forth by the IRS for short-term rental such as this are very specific.

  • 100% of expenses directly incurred from renting may be tax deducted. This includes credit or background checks, advertising costs, insurance, repairs and cleaning.
  • A percentage of general expenses such as utilities and taxes may be deducted. This step requires you to figure what percentage of the space is being used as a rental, and therefore what percentage of associated bills are considered an expense. For example, if you rent one room of a five room house on Airbnb, then you are only able to claim a maximum of 20% of your utility costs as a deduction. This is assuming that the spare bedroom is rented for all 30 days of the month. If you only rent the space a handful of days, the need to further refine your percentage based on its actual usage.

The tax laws for operating as an Airbnb host are continuing to evolve as this option continues to grow in all cities across the country. For now, keep detailed records of all expenses, income, and rental contracts for your temporary vacation rental. If you need help understanding how to register under the 2011 ruling in the city of Chicago or have general questions about tax rules regarding Airbnb, contact Attorneys Tax Relief today.