1. Learn in regards to the 14-day rule
Tax legal guidelines are stuffed with exceptions, however the 14-day rule—generally known as the “Masters exception” due to its recognition in Georgia throughout the annual Masters golf event—is an important for anybody contemplating renting out a trip residence. Under this rule, you do not pay tax on revenue you earn from the short-term rental, so long as you:
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- Rent the property for not more than 14 days throughout the yr AND
- Use the holiday home your self 14 days or extra throughout the yr or at the very least 10% of the overall days you hire it to others.
Portland resident Alice Chan earns further revenue by renting out her trip residence on the Oregon Coast a number of instances a yr. These days, she is cautious to maintain the overall rental time underneath 14 days—a tactic she recommends to others.
“The first year, I accepted guests for two one-week stays, plus 10 days over Christmas,” Chan says. “I ended up paying hefty taxes and investing a lot of time in trying to figure out my tax deductions and finances. Now, I just stick to the 14-day limit.”
2. Learn about exceptions for rooms
If you simply hire out one room in your own home, the 14-day rule applies in the identical approach as if you happen to hire out your entire home. Fourteen days or much less, you don’t even should report the revenue in your taxes, however you can’t take any deductions both.
3. Don’t panic if you happen to get an IRS letter
The rule is straightforward: you do not have to report rental revenue if you happen to keep inside the 14-day rule. However, due to reporting legal guidelines, corporations like Airbnb, HomeAway, and VRBO might report back to the IRS all revenue you obtain from short-term leases, even if you happen to hire for lower than two weeks.
If this occurs, and you do not embody the revenue in your tax return, you could hear from the IRS. Don’t panic. You’ll merely must show the revenue qualifies for the 14-day exception.
4. Keep flawless information of rental durations
You’ll have a a lot simpler time with tax points in your short-term trip rental if you happen to deal with it as a enterprise from the get-go and maintain meticulous information.
If you hire out your home for 2 weeks or much less, maintain cautious monitor of each rental days and people days you used the residence your self. If you hire for longer than the 14-day exception interval, element the dates exactly so you possibly can correctly divide out private and enterprise bills, like mortgage curiosity.
5. Document all enterprise bills
You are entitled to deduct all “ordinary and necessary” bills to function your rental enterprise. Like the “B&B” in Airbnb, consider your rental as a bed-and-breakfast. If you purchase new towels to your friends, repaint the guestroom or put a bottle of wine on the desk for incoming friends, you possibly can deduct these bills out of your rental revenue.
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By preserving clear information and recording all cash you spend on the enterprise, you will not have to return by way of bank card statements for proof for the IRS.
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6. Apportion mortgage curiosity and taxes if you happen to hire room solely
If you hire out a room, relatively than the whole home, for over 14 days, you pay taxes on the rental quantity and you’ll take enterprise bills. However, you possibly can’t deduct 100% of bills like mortgage curiosity and property taxes. These should be apportioned between private and enterprise use of your residence.
7. Fill out Form W-9 Taxpayer Identification Number
Airbnb, HomeAway, VRBO, FlipKey, and comparable corporations should withhold a full 28% of your rental revenue if you happen to do not present them with a W-9 type. In most instances, your efficient tax price will probably be decrease than 28%.
There’s no cause to let the tax authorities maintain your overpayment all yr, so file that W-9. Once you do, the rental firm can cut back the withholding proportion, supplying you with speedy entry to the utmost quantity of rental revenue.
8. Deduct the guest-service or host-service charges
Airbnb, FlipKey, and different short-term rental corporations normally cost a proportion price, known as a guest-service price or a host-service price that’s taken off the highest of the hire that friends pay. When these corporations ship you and the IRS a 1099 type reflecting your own home rental earnings for the yr, it contains the quantity of service charges.
If you hire out your property or house for greater than 14 days within the yr, you possibly can and will deduct this price out of your reported rental revenue. Since 100% of the price was instantly associated to the rental use of the property, you possibly can deduct the whole quantity paid.
9. Learn about relevant occupancy taxes
Some state and native governments impose occupancy taxes on short-term leases. These range broadly from one jurisdiction to the subsequent, from the identify of the tax—resort tax in some states, transient lodging tax in others—to the charges and guidelines.
In many instances, the host is required to gather the occupancy tax instantly from renters and submit the cash to the tax authority, however some corporations, like Airbnb, accumulate and submit the taxes in sure cities and states.
10. Pay self-employment taxes
If you’re self-employed, it’s a must to pay self-employment taxes, in addition to revenue taxes. Self-employment taxes cowl Social Security and Medicare contributions for the revenue you make when you find yourself in enterprise for your self.
When you hire out your property, make bookings and supply facilities, like espresso or breakfast, the IRS might deal with you as being self-employed within the trip rental enterprise.
To perceive extra about tax deductions, go to our Self-Employed Tax Deduction Calculator for Airbnb.
Source: www.thestreet.com”