Wondering about Airbnb taxes and what you should know about them before getting started with short term rentals? Then, we’ve got you covered.
Airbnb has shaken up the way people travel, eventually becoming a popular choice for travelers looking for a more unique and personalized experience. It has also created an opportunity for homeowners to earn extra income by renting out their properties as short term rentals.
Table of Contents
- How Do Airbnb Taxes Work for Hosts?
- What Taxes Do Airbnb Hosts Need to Pay?
- How to Report Airbnb Income on Taxes
- Tips for Staying Compliant With Local Tax Laws
- Airbnb Taxes: Things You Should Keep In Mind
However, many Airbnb hosts are often unaware of the tax implications of hosting on the platform. In this article, we will discuss everything Airbnb hosts need to know about taxes, including what taxes they may be responsible for paying and how to report their Airbnb income. Most importantly, we will share tips for staying compliant with local tax laws.
How Do Airbnb Taxes Work for Hosts?
Depending on where you live, you may be obligated to collect municipal tax or Value Added Tax (VAT) from your visitors as a host. If you decide to collect tax, it is critical that guests are advised of the precise tax amount before they make the reservation.
In some areas, Airbnb hosts are given the option to collect and remit occupancy tax. However, hosts should not obtain occupancy taxes for such regions separately.
Suppose you’re a host and have submitted your company tax ID and necessary tourist tax registration information. In that case, you may be able to collect taxes directly from visitors using Airbnb’s professional hosting solutions.
Moreover, if automated occupancy tax collection and settlement is not available for your listing, you can personally collect occupancy taxes via a special offer or Airbnb’s Resolution Center.
Related: 10 Things to Include in a Short Term Rental Agreement
What Taxes Do Airbnb Hosts Need to Pay?
Airbnb hosts may be required to pay several types of taxes, depending on their location and the laws in their area. We’re going to list some of the most common taxes that Airbnb hosts may be required to pay.
1. Income Tax
Airbnb income is generally considered taxable and must be reported on the host’s income tax return. In the US, hosts must report their Airbnb income on their federal income tax return and may also be required to file state income tax returns.
2. Occupancy Tax
Many cities and states impose a tax on short term rentals, including Airbnb rentals. The tax is often referred to as an occupancy tax or transient occupancy tax (TOT). The tax rate and requirements for collecting and remitting the tax vary depending on the location.
Some cities require hosts to register with the local tax authority and collect the tax from guests, while others require Airbnb to collect and remit the tax on behalf of hosts.
Related: How to Calculate the Occupancy Rate for Rental Properties
3. Sales Tax
In some jurisdictions, Airbnb hosts may have to collect and remit sales tax on their rental income. The said Airbnb tax typically depends on the total amount paid by the guest, including any cleaning fees or other additional charges.
How to Report Airbnb Income on Taxes
Airbnb hosts must report their rental income on their tax returns, and failure to do so can result in penalties and fines. Here’s how to report Airbnb income on taxes.
- Keep records of all Airbnb income: Keep accurate records of all rental income. They include the dates and amounts of each rental, the guest’s name, and any fees paid to Airbnb.
- Determine your tax obligations: Determine which taxes you are required to pay based on your location. Consult with a tax professional to ensure you are in compliance with all local tax laws.
- Report rental income on Schedule E: Report rental income on Schedule E of your federal income tax return. You must report the total rental income received and any expenses incurred, such as cleaning fees or repairs.
- Deduct expenses: Airbnb hosts may be eligible to deduct certain expenses related to their rental property, such as mortgage payments, property taxes, insurance, and maintenance expenses. Keep accurate records of all expenses and consult a tax professional to ensure you claim all eligible deductions.
- File state and local tax returns: If you are required to file state or local tax returns, be sure to report your rental income and any taxes owed accurately.
Related: How to Estimate Vacation Rental Income
Tips for Staying Compliant With Local Tax Laws
Staying compliant with local Airbnb tax laws can be challenging for hosts, especially if the laws are complex or constantly changing. Below are some tips for staying compliant with local tax laws.
1. Research Local Tax Laws
Research the tax laws in your area to determine which taxes you must pay and how to collect and remit them. You can consult with a tax professional or check with your local tax authority to ensure you are in compliance with all applicable tax laws.
2. Register With Local Tax Authorities
Some cities require hosts to register with the local tax authority and obtain a tax registration certificate. Be sure to register and obtain any required permits or licenses before renting out your property. Failure to do so can result in penalties and fines.
3. Collect Taxes From Guests
If the state or city requires you to collect and remit occupancy or sales taxes, be sure to collect them from your guests and remit them to the appropriate tax authority. You can set up an automatic collection of taxes through the Airbnb platform or collect the taxes directly from guests.
4. Keep Accurate Records
Keep accurate records of all rental income, expenses, and taxes paid. Doing so will help you to accurately report your income and expenses on your tax returns. It will also help ensure that you are claiming all eligible deductions.
5. Stay Up-To-Date With Tax Laws
Airbnb tax laws can change frequently, so it’s important to stay up-to-date with any changes that may affect your tax obligations. You can subscribe to local tax authority newsletters or consult with a tax professional to stay informed of any changes to tax laws in your area.
6. Hire a Tax Professional
If you are unsure about your tax obligations or need help filing your tax returns, consider hiring a tax professional. A tax professional can help you to navigate complex tax laws and ensure that you comply with all applicable Airbnb tax laws.
Airbnb Taxes: Things You Should Keep In Mind
As an Airbnb host, it’s essential to understand your Airbnb tax obligations and ensure you act in accordance with local tax laws. Below, we will list some of the most common questions (and answers) you should keep in mind when it comes to Airbnb taxes.
What Will Happen if You Don’t Provide Any Taxpayer Info?
As an Airbnb host, if you fail to provide taxpayer information, you may not be able to receive payment from Airbnb. The hosting platform has the legal obligation to collect taxpayer information from hosts and report it to the relevant tax authorities. Failure to provide the said information can result in Airbnb withholding your payment until the necessary information is provided.
In addition, failure to provide accurate and complete taxpayer information can result in penalties and fines from the tax authorities. It can result in significant financial and legal consequences for hosts who fail to comply with tax laws.
It’s important to note that Airbnb takes tax compliance seriously, even implementing measures to ensure hosts comply with local tax laws. They include collecting and remitting applicable taxes on behalf of hosts in certain jurisdictions. Airbnb also provides resources and information to help hosts stay compliant with existing tax laws.
Why Do Foreign Hosts Not Have to Pay Airbnb Taxes in the US?
Airbnb withholds US taxes for foreign hosts because US tax laws require non-US citizens and non-US residents to pay taxes on their US-sourced income. As a US-based company, Airbnb must collect and withhold taxes on behalf of foreign hosts who earn income through the platform in the US.
Under US tax laws, non-US residents are generally subject to a 30% withholding tax on certain types of income earned in the US. It includes rental income earned by foreign hosts on Airbnb. However, the US’s tax treaties with many countries allow for a reduced withholding rate on certain types of income, including rental income.
Airbnb must collect the appropriate tax withholding from foreign hosts based on their tax status and country of residence. Hosts can also claim a reduced withholding rate or exemption from withholding under certain circumstances, such as if they possess a valid US taxpayer identification number (TIN) or if they are eligible for a tax treaty benefit.
Foreign hosts need to understand their tax obligations and ensure they comply with US tax laws. Failure to comply with tax laws can result in penalties, fines from the tax authorities, and potential legal consequences.
What About Tax Deductions and Late Payment?
As an Airbnb host, you may be eligible for certain tax deductions, such as deductions for rental expenses and depreciation of your property. Be sure to keep accurate records of your rental expenses and consult with a tax professional to ensure you are claiming all eligible deductions.
Moreover, failing to pay Airbnb taxes on time can result in penalties and interest charges from the relevant tax authorities. Make sure to understand your tax obligations and pay your taxes on time to avoid penalties and interest charges.
What Forms Should You Use for Airbnb Tax Reporting?
Hosts may need to report their rental income to various tax authorities and may need to file different tax forms depending on their tax status and location. Let’s see some tax forms that may be used for Airbnb tax reporting.
1. Form 1040
Form 1040 is the standard individual income tax return form that US taxpayers use to report their income and claim any applicable deductions and credits. Airbnb hosts in the US who earn rental income through the platform will need to report their rental income on their Form 1040.
2. Schedule E
Schedule E is a supplementary tax form that accompanies Form 1040 and is used to report Airbnb rental income and expenses. Airbnb hosts in the US who earn rental income through the platform will need to complete Schedule E to report their rental income and expenses.
3. Form W-9
Hosts need to use Form W-9 to provide taxpayer information to US-based companies, including Airbnb. They may need to complete a Form W-9 to provide their name, address, and taxpayer identification number to Airbnb for tax reporting purposes.
4. Form W-8BEN
Non-US residents use such form to provide their taxpayer information to US-based companies, including Airbnb. US tax laws may non-US hosts to accomplish a Form W-8BEN to provide their name, address, and foreign TIN to Airbnb for tax reporting purposes.
5. Form 1099-K
Form 1099-K is a form Airbnb uses to report the rental income earned by hosts to the IRS. Airbnb will issue a Form 1099-K to hosts who earn more than $20,000 in rental income and with more than 200 transactions on the platform in a calendar year.
6. Local Tax Forms
Depending on the host’s location, they may need to file additional tax forms to report their rental income and remit any applicable taxes. For example, hosts in some US states may need to file a state tax return and remit state sales or occupancy taxes.
Airbnb Taxes: Conclusion
In conclusion, understanding and complying with Airbnb tax requirements is crucial for hosts to avoid penalties and fines. Hosts should be aware of the various taxes that may apply to their rental income, such as occupancy taxes and income taxes. They must ensure that they report their income accurately on their tax returns.
Airbnb may collect and remit taxes on behalf of hosts in some jurisdictions. Still, it’s important for hosts to understand which taxes Airbnb is collecting and remitting. They must also know which taxes they are responsible for collecting and paying themselves.
Non-US hosts may be subject to withholding taxes on their rental income, and it’s vital to provide accurate taxpayer information to avoid over-withholding.
Finally, hosts may be eligible for certain tax deductions. They should keep accurate rental income and expense records. Moreover, consulting with a tax professional can help hosts ensure they are claiming all eligible deductions and following local tax laws.
By being compliant with Airbnb tax requirements, hosts can focus on providing great guest experiences and maximizing their rental income. Market research and data analysis are important components. Additionally, precise computations that account for necessary taxes are also imperative.
Filing the right taxes is a significant part of every investment journey. To estimate your potential Airbnb rental income and calculate the required taxes accurately, you can turn to Mashvisor. Additionally, you can use Mashvisor’s Property Finder tool to locate properties that meet your goals and conduct due diligence on them, helping ensure your future profitability.
Start searching for the most lucrative investment property, along with complying with Airbnb taxes and regulations. Sign up for a 7-day free trial with Mashvisor today.
