Airbnb Tax Exemption: What You Need to Know About Rental Income

Earning money from Airbnb can come with tax obligations, but in some cases, rental income may be exempt. Understanding these exemptions helps hosts avoid unnecessary tax payments or penalties.

Tax rules depend on factors such as the number of days a property is rented, local regulations, and how the space is used. Knowing what qualifies for an exemption ensures compliance while maximizing earnings.

Exemption Threshold for Occasional Rentals

The IRS allows homeowners to exclude short-term rental income under the “14-day rule.” If a property is rented for 14 days or less per year, the income is tax-free, regardless of the amount earned. However, if rentals exceed this limit, all earnings must be reported.

This exemption applies only to primary residences or second homes, not full-time rentals. Properties primarily used for rental purposes are subject to different tax rules, including depreciation deductions and expense allocations. Those qualifying for the exemption do not report income or deduct related expenses, simplifying tax filing.

In cities with major events, such as Augusta, Georgia, during the Masters Tournament, homeowners can earn significant tax-free income by renting their properties within the 14-day window. This exemption benefits those in high-demand areas with seasonal rental opportunities.

Distinguishing Personal and Rental Use

A property’s use throughout the year determines how rental income is taxed. If rented part of the year but also used personally, the IRS requires a clear separation between personal and rental use, affecting deductions and exemption eligibility.

A home is considered a personal-use residence if the owner, their family, or anyone paying below market rent occupies it for more than 14 days or 10% of total rental days, whichever is greater. If personal use exceeds this threshold, expenses must be allocated accordingly.

For example, if a home is rented for 120 days and used personally for 30 days, 20% of eligible expenses—such as mortgage interest, utilities, and maintenance—are considered personal and not deductible against rental income. The remaining 80% can be deducted, subject to passive activity loss limitations.

To ensure compliance, homeowners should maintain records like rental agreements and utility bills. Misclassifying a property can result in denied deductions or penalties if audited.

Local Occupancy Tax Regulations

Many cities and counties impose occupancy taxes on short-term rentals, requiring hosts to collect and remit these taxes. Known as transient occupancy taxes (TOT) or lodging taxes, these fees ensure rental income is taxed similarly to hotel stays. Rates vary by location, typically ranging from 5% to 15% of the rental price, including cleaning fees and other charges.

Some cities require hosts to register for a tax permit and file monthly or quarterly tax returns. In Los Angeles, hosts must collect a 14% TOT, while in Austin, Texas, the local hotel tax is 11%, in addition to a 6% state hotel tax. Failure to comply can result in fines, interest on unpaid taxes, or audits.

Airbnb and other platforms have agreements with certain cities to collect and remit these taxes on behalf of hosts, simplifying compliance. However, this is not universal, and in many areas, hosts must handle tax payments themselves. Checking with local tax authorities or reviewing Airbnb’s list of jurisdictions where it collects taxes helps determine whether additional filings are necessary.

Reporting Exempt Airbnb Income

Even when rental earnings qualify for an exemption, hosts must handle tax reporting correctly. While the 14-day rule allows for tax-free income, Airbnb and other platforms may still issue a Form 1099-K if total transactions exceed $20,000 and 200 transactions in a year. Starting in 2024, this threshold drops to $5,000. Receiving a Form 1099-K does not necessarily mean taxes are owed, but it requires documentation to prove the income qualifies for exclusion.

If exempt income appears on a 1099-K, it may need to be reported on Schedule 1 (Form 1040) and then adjusted out to reflect its tax-free status. This is done by listing the amount under “Other Income” and entering an offsetting negative adjustment with a note referencing IRS Section 280A(g), which governs the 14-day exemption rule. Failing to report the adjustment properly could trigger an IRS inquiry.

Required Documentation

Maintaining accurate records is essential for Airbnb hosts, especially when claiming a tax exemption or complying with local tax laws. Proper documentation substantiates rental activity, tracks deductible expenses, and provides evidence in case of an audit.

Rental agreements, booking confirmations, and payment receipts serve as primary documentation for proving the number of days a property was rented. Hosts should also retain utility bills, property tax statements, and mortgage interest records to demonstrate personal versus rental use. For those subject to local occupancy taxes, copies of tax filings and any correspondence with tax agencies should be kept for at least three years.

Digital tools, such as accounting software or Airbnb’s transaction history, can help streamline record-keeping and ensure all necessary documents are readily available.