Tax Responsibilities for Airbnb Hosts & Vacation Real Estate Investors

The vacation rental industry has been booming for some time now, with no signs of slowing down. In fact, it’s how some people get into real estate: by realizing the income from renting a room in one’s home is pretty nice. More investors and ordinary folks are taking advantage of platforms such as Airbnb to maximize their real estate income. If you’re one of them (or thinking about becoming a host), you should be aware of your tax obligations. Here’s the quick and dirty guide for the vacation rental investor.

14 Days: The Magic Number

One simple way to avoid extra tax expenses is to limit vacation renters to a two week stay annually. The Tax Code only kicks in the costs discussed below for visits over this time period. So if you, say, are an occasional user of Airbnb or tend to only have very rare short guests, you won’t need to report the income. But here’s the catch: you can’t deduct your business expenses on unreported income.

When Do You Have to Report Income From Airbnb?

If you meet the following conditions, you must report and pay taxes for your vacation rental business:

  1. You have guests on your property for over 14 days.
  2. You occupy the home for over 14 days of the year or 10% or more of the days you’re renting.

If you live in the home you’re renting, that means you will have to distinguish which portion of the mortgage is related to personal vs. business use. Property taxes and interest will also be recorded on Schedule E of your tax return.

You May Get a 1099 From Airbnb

Airbnb might send you a 1099-K, the type of 1099 for third party transactions. If Airbnb withholds funds for any reason, you’ll also receive notifications of withholdings at your mailing address.

Not everyone gets a 1099-K from AIrbnb. However, if you earn over $20,000 or make over 200 reservations in a single tax year, you will receive one. Airbnb will also report your earnings.

Other Tax Issues for Vacation Rental Investors to Note

Everything discussed above pertains to federal law. But Airbnb investors must also conform to state and local regulations. Airbnb and vacation rental regulations change fairly rapidly and vary dramatically from jurisdiction to jurisdiction.

  • Occupancy taxes. This matter is extremely location specific. Check your local laws or talk to an attorney to cover your bases.
  • Sales taxes. Generally you will be expected to collect sales taxes.
    Here are some examples of taxes your city or state may apply:
  • Any business taxes if you are using an entity for asset protection. Some states will require income tax in this case. But it’s worth it to defend your assets.

The best thing an investor can do to ensure they are complying with all state and local laws is to  acontact a qualified real estate attorney. A small fee for a bit of legal advice that could keep you away from a tax dispute is totally worth it.

Last Updated: 
May 22, 2019

Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

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