Home sharing through sites like Airbnb, VRBO and HomeAway are becoming more and more popular. My family jumped on the Airbnb hosting train recently, and we made a tidy little side income in January renting out our spare room. I won’t have to pay taxes on that income until next tax season, but I’m already wondering what expenses I can write off.
It turns out that lots of Airbnb host expenses are deductible, and those deductions work for other home-sharing services as well.
The Basics of Taxes & Home Sharing
Renting out a part of your home is similar to becoming a landlord for an entire property, and it’s a lot like running a small business. The general IRS rule is that you can deduct expenses that are “both ordinary and necessary” for your business. But you’ll pay taxes on any income that you earn over and above those deductions.
There’s one caveat: the 14-day rule. If you rent part or all of your primary residence to others for less than 15 days out of the year, you don’t have to report that rental income, but you can’t deduct any expenses.
If you really like being a host, though, and rent all or part of your home for 15 days or more, you’ll have to report the income. So you’ll want to take all the deductions you possibly can. When it comes to deductions for rentals, you need to be careful, though. You can only deduct expenses that were spent on your business.
So if you buy new bath towels that your renters just happen to use in your shared bathroom, you can’t deduct the full cost of the bath towels. But if you buy linens just for your Airbnb renters, you can deduct the full cost.
With that in mind, below are some expenses you might deduct.
9 Expenses You Could Deduct
1. Service Fees: Most short-term rental services charge hosts a fee that comes off the top of the rent paid by the guest. Even if this fee comes out of the guest payment before it hits your bank account, you can deduct it as a business expense.
2. Advertising Fees: If you pay for any advertising outside of that offered by the rental company (and, therefore, covered with your service fees), deduct those expenses.
3. Cleaning & Maintenance Fees: If you buy cleaning supplies for your rental room, deduct those. If you pay a professional for cleaning, deduct that expense, too. Any maintenance costs related to the rental property are also deductible. If you pay for whole-house maintenance, such as a furnace tune-up or a roof replacement, a part of that cost will be deductible.
4. Utilities: If you’re only renting part of your home part of the time, you’ll split the utilities — part as a personal expense and part as a business expense that can be deducted.
5. Property Insurance: If you need to pay more insurance on your home because of having renters present, you can deduct the extra cost. Even if your property insurance fees haven’t increased, you can write off part of the expense as a business expense.
6. Property Taxes: The same goes for property taxes: You can write off the portion of your property taxes equal to the portion of your home being rented.
7. Trash Removal Services: Services that you pay the municipality for can be deducted, because they’re both reasonable and necessary.
8. Property Improvements: You can deduct the cost — or the interest paid on a loan, if you don’t pay cash — of improvements made to the property if those apply to the rented area.
9. Furniture, Linens & Food: You presumably provide guests with at least a couch, if not a bed. If you buy new furniture for your guest room, you can deduct that. You can also deduct the cost of linens, curtains, shower supplies, or food that you provide to your guests.
Splitting the Expenses
Unless you’re renting your whole home for the full year, you’ll need to prorate these deductions. In short, you can only deduct these expenses when they actually apply to the rental space while it’s being rented.
As you can see, things can get hairy! If you decide to host through Airbnb or another similar service this year, here’s what you need to do:
- Keep detailed records. Know exactly when you had renters and for how much. Keep all your receipts related to expenses for the rental, or for improvements or utilities for your whole house.
- Know your local laws. In some cases, you may have to pay additional local taxes when you do a short-term rental. Get familiar with those laws, which vary by state and locality.
- Get a professional to help. Because these issues are so complex, it’s best to consult with a tax professional about your rental income, especially if you made a decent amount of money through the year. You want to take all the deductions you can to lower your tax bill. But you also want to make sure you’re doing it legally.