How does renting a room in your house or an entire apartment impact your income taxes? It is important to keep good accounting records in order to minimize your taxes at the end of the year,
While on vacation this year I decided to try Airbnb. Airbnb is a company that provides the platform for individuals (hosts) to rent rooms in their home or entire apartments mainly to travelers. Airbnb rates are typically lower than most hotels. The most intriguing aspect to me was the opportunity to interact with the locals which in my opinion adds to a traveler’s most authentic traveling experience.
Of course, the accountant in me surfaced while staying with my host, and I wanted to learn more about this rapidly growing industry. I learned Airbnb continues to have exceptional growth worldwide; as of November 2012, the company had over 250,000 listings in 30,000 cities and 192 countries.
First, understand you have embarked on a business. So let me try to simplify the tax code regarding rental income and expenses. For the purposes of this blog, we will assume you rent a room in your primary residence and this room is always available for short term rental, and you do not use this room. You must divide the expenses between the parts you rent and the parts you live in; just imagine you have two properties. You would figure out the square footage of your entire house and divide by the square footage of the room rented.
Example- You rent a room in your house. The room is 12 x 12, or 144 square feet. Your entire house is 2000 square feet. You can deduct as rental expense 7.2% of any expense that must be divided between rental use and personal use.
You can deduct:
Real Estate Taxes
Repairs and Maintenance
Meals and beverages provided to guests
Mileage if applicable
Supplies ex. towels, bedding, etc.
Repairs made specifically to rental room such as replacing carpet can be a 100% deduction. Since Airbnb will issue you a 1099 at the end of the year, tracking income is easy. Even a more important reason you should keep good records tracking expenses in order to minimize your tax liability.
Following these guidelines can make your new venture an enjoyable and profitable experience instead of a tax nightmare at the end of the year!