Now that you are in the business of being an Airbnb Host and generating revenue from your investment rental real estate, you have many new tax considerations to make throughout the year. You may wonder what your tax reporting requirements are and what do you need to do to stay in tax compliance.
Since there is so much to think about as an Airbnb Host, let us explore your reporting requirements for the tax year.
As an Airbnb host, what are you responsible for reporting on your taxes?
As an Airbnb Host, whether or not you have an income tax reporting requirement, hinges upon the nature of your rental activity, the time you spend engaging in the rental activity and the type of business activity performed.
As a general rule, if you lease your property for any period less than 14 days during the tax year, the income you generate is nontaxable.
But if you lease your property for 14 days or more, you are subject to the residential rental property tax rules.
Will Airbnb send you a 1099 form?
Airbnb will issue IRS Form 1099-K if you received $20,000 or more through a third-party platform and the platform processed more than 200 transactions during the tax year.
If you are eligible to receive form 1099-K, you should receive the form by January 31st.
This rule holds true unless you're a resident of Massachusetts or Vermont.
Reporting requirements for residents of Massachusetts and Vermont
If you are a resident of Massachusetts or Vermont who received payments of $600 or more from your Airbnb rental activity, you will receive Form M-1099K.
IRS Form 1099- K reporting requirements
If you receive form 1099-K, the income reported to the tax form will be reported to the gross receipts section of Schedule C on Form 1040. Airbnb income reported to Schedule C will be exposed to self-employment tax. The self-employment tax rate is 15.3% . If you are not required to report your activity to Schedule C, the passive income that you derive from rental income will be reported to Schedule E.
If you report your income to Schedule C, you should keep track of the rental expenses and associated business expenses for tax purposes. Practicing good record keeping is essential.
Also note that if you are a U.S. citizen, you are required to submit form W-9 to Airbnb; otherwise, you will be subject to back up withholding. If you are subject to back up withholding Airbnb will automatically withhold 24% of your rental income in taxes.
If you are not a U.S. resident, Airbnb will not send Form 1099- K.
Non-U.S. resident with reportable earnings
If you are a foreign person, you will not receive form 1099-K; you will receive IRS Form 1042-S. And if you do receive form 1099-K, contact Airbnb immediately, receiving the wrong tax form carries substantial tax implications.
If you are a U.S. nonresident with a U.S. listing, Airbnb is required to automatically withhold 30% on all payouts and remit these amounts to the IRS. As a result, you will receive Form 1042 -S for income that is effectively connected to a U.S. trade or business. This form will also be issued to luxury resort hosts with U.S.-sourced rental income.
Airbnb is required to file form 1042-S by March 15th with the IRS and mail it to you by March 15th.
Additionally, all nonresident hosts with U.S.-sourced income are required to submit form W-8 BEN.
If you have never heard of Form 1099- NEC, you're in good company. Form 1099 -NEC is a new one and is used to report nonemployee compensation. In prior years, 1099- MISC was used to report nonemployee compensation, but the IRS has changed the reporting requirements and the form is now being used to report nonemployee compensation.
Form 1099 NEC will be used if you rendered services to Airbnb (e.g., photography, cleaning, laundry, airport pick up/drop off, translation service). This form must be reported to the IRS by February 21 and mailed to you by the same date.
It is important for you to remember that if you rendered your services, those services are reported to Form 1099- NEC. If you receive 1099 MISC instead of Form 1099 NEC, you should contact the issuer immediately. If you do not receive the correct tax document, you could face tax consequences.
Bonuses, awards, and other compensation
If you received bonuses, rewards, or other compensation, you could receive if those payments were $600 or more.
Outside of the tax information reported to federal form 1099, you will also have state and local tax compliance requirements.
Occupancy tax and the reporting requirements
Occupancy tax, otherwise known lodging tax, are taxes that are imposed by the state or local government on your short-term rental. As an Airbnb host, you are required to withhold and remit occupancy taxes to your state and or local government. This process is generally automatic, and hosts only have to manually input this data where Airbnb platform does not automatically withhold the occupancy tax for the jurisdiction, but you should check with your state local taxing authority. In some cases, even where the process is automated, there may still be some manual components.
In addition to occupancy tax, at the state level, the guest will also be responsible for paying state sales tax.
Business expenses and tax deductions
Now that you are aware of the many types of tax forms you could receive, you may also wonder what type of business expenses you can deduct during the tax year. As a taxpayer, you can deduct any business expense that is ordinary and necessary for your trade or business. This means rental property owners can deduct the business expenses that are associated with their rental activity and you will not need to claim an itemized deduction . This means the property tax you pay, the services and the cost you pay to have the property cleaned, you can include as a deductible expense on your income tax return.
The Millionacres bottom line
The rental activities that you engage in with Airbnb, unless you rented out your property for less than 14 days, are reportable to the IRS. Given this fact, all the income that you derive from Airbnb should be reported on your tax return. The IRS has a matching system, meaning when companies like Airbnb report a taxpayer's income, the IRS matches it against the information on your tax return. Failure to report your income could lead to substantial penalty exposure. For this reason, it is important to report your Airbnb earnings. If you need assistance with this process, consulting a tax professional for tax advice would be your safest bet.