Rental or Self-Employment Income? How Is Airbnb Income Taxed?

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. While traditional rental income isn’t considered to be earned income subject to self-employment tax, and  not considered self-employed this depends on your level of involvement in the rental. 

Let’s explore the tax rules around being a landlord, albeit a temporary one, and how Airbnb income is taxed.

Is Airbnb rental income reported to the IRS?

You may be wondering, “How will the IRS know that I have rented out a room?”. They’ll know because the rental platform you list your vacancies on 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.

For the 2023 tax year, Airbnb only issued 1099-K forms to “Hosts who have exceeded $20,000 and exceeded 200 transactions (in aggregate) for calendar year 2023’. You may also receive a 1099-K from Airbnb or other vacation rental marketplaces you use if your state has a lower threshold.

The IRS is planning to lower that threshold to $5,000 for tax year 2024. This adjustment is meant to phase into the $600 reporting threshold enacted under the American Rescue Plan. You’ll want to keep that in mind as you’re taking reservations and planning for taxes.

However, even if you did not receive a 1099, the rental income you earned from Airbnb is reportable on your tax return, unless the non-taxable rental exception applies. 

That means the IRS will be looking for you to report that income on your tax return. But what you really need to be asking is, “Is Airbnb income taxable?”

When is Airbnb income taxable?

Generally speaking income earned on Airbnb is taxable. How you will report the income on your tax return depends on your “substantial services” provided to the rental as coined by the IRS. Your Airbnb income will either be reported on a Schedule E or a Schedule C. 

There are three overarching factors to consider when determining which form you’ll use: 

• Residency/personal use of the property
• Extent of services provided
• Total days rented within the year

Below we’ll further explain and help guide you on which form you should use to report Airbnb rental income.

Schedule E

If you didn’t use the property as a residence or stay there throughout the year and provided minimal or no services to your Airbnb guests, you’ll use Schedule E.

If you rent out your home for 15 days or more, 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 of up to $25,000.

Schedule C

If you didn’t use the property as a residence or stay there throughout the year but did provide “substantial services” (like cleaning daily or providing tour planning) and rented out the property for 15 days or more, you’ll use Schedule C.

When you use Schedule C, rental income will be subject to self-employment taxes.

Nontaxable

However, Airbnb 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.

Which rental expenses are deductible?

Some of the rental expenses you may be able to write off 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.