As Airbnb’s popularity continues to rise, more and more people are beginning to rent out their homes in the on-demand economy, and are learning about a new set of tax implications that come with it. When you offer your home, or a room in your home, as a short-term rental, you may be able to keep your income taxes to a minimum — and sometimes eliminate them entirely — if you follow some of these useful tax tips.
Learn About the 14-Day Rule
The 14-day rule is very important for anyone considering renting out a personal residence like a main home or vacation home. Under this rule, you don’t pay tax on income you earn from the short-term rental, as long as you rent the property for no more than 14 days during the year AND use the home yourself 14 days or more during the year or at least 10% of the total days you rent it to others.
Keep Records of Rental Periods
If you rent out your place for two weeks or less, keep track of both rental days and those days you used the residence yourself. If you rent for longer than the 14-day exception period, detail the dates precisely so you can separate what expenses are considered personal and what expenses are business. Keeping good records will help document your rental activity as a short-term vacation rental.
Don’t Panic if You Have to Prove You Have a Short Term Rental
The rule is simple: you don’t have to report rental income if you stay within the 14-day rule. However, because of reporting laws, companies like Airbnb, HomeAway and VRBO may report to the IRS all income you receive from short-term rentals, even if you rent for less than two weeks. If this happens, and you don’t include the income on your tax return, you may hear from the IRS. Don’t panic– your records that reflect details of your rental activity will show that your rental was a short term rental.
Don’t worry about knowing these tax laws. TurboTax will ask you simple questions about you and give you the tax deductions and credits you’re eligible for based on your answers.