Wouldn’t it be great if your home was working while you were on vacation? Well, that’s essentially what happens when you rent out your apartment on Airbnb and other similar services. Rental income is not considered to be earned income subject to self-employment tax and you are not considered self-employed. Whew! But you may be on the hook for federal and state income taxes on rental income since you are considered a landlord with rental property, so let’s explore the tax rules around being a landlord, albeit a temporary one.
How will the IRS know that I have rented out a room, you may wonder. They will because the rental platform you rent through will send a report to the IRS at the end of the year on a 1099 form telling them how much rental income they collected and paid to you. That means IRS will be looking for you to report that income on your tax return.
But wait – that income may not be taxable to you if you don’t rent your home out very often. If you rent out all or part of your home for no more than 14 days a year, all the rents you receive are tax-free. That’s right, you don’t even have to report the income on your tax return.
Sounds like a sweet deal? It is. But be aware that if you don’t have to report the rental income, you don’t get to deduct any of the expenses as rental expenses either. So if you had the house cleaned before your renters came and again when they left, you don’t get a tax deduction for the housekeeping expense. That’s all on you.
Now, if you rent out your home for 15 days or more, that’s a different story entirely. In that case, you’ll have to report your rental income on Schedule E of your tax return, but you can report your rental expenses there as well to offset part of that income. If the rental income is greater than the rental expenses, you’ll have to pay tax on the difference. And if your rental expenses exceed your rental income you may be able to claim a loss up to $25,000.
Rental expenses include rental fees, advertising, cleaning, insurance, mortgage interest, property taxes, repairs and maintenance. In addition, you can take depreciation on the portion of the home you are renting, for the period you are renting it. And if you are renting just a room, you can take a proportionate deduction for the expenses for your entire home, based on the size of the area rented compared to the whole home, and the period of time for which it was rented. For example, if you rent a room for the entire year, and it is 20% of the home, then you can deduct 20% of the costs of your home.
Don’t worry about knowing these tax laws and forms. TurboTax will ask you simple questions about your rental property and give you the tax deductions and credits you deserve based on your answers.