Can I Write Off Airbnb Business Expenses?

Renting out a property can generate income. Deducting expenses related to your rental property reduces taxable income. These deductions help offset the costs associated with managing, maintaining, and operating a rental unit. This overview clarifies how various expenses can be written off for tax purposes.

Determining Rental Property Status

The classification of your property for tax purposes depends on how frequently it is rented and used for personal reasons. The Internal Revenue Service (IRS) outlines specific rules to differentiate between a rental activity and personal use.

The “14-day rule” or “10% of total days rented” rule applies. If you use your dwelling unit for personal purposes for more than the greater of 14 days or 10% of the total days it is rented at a fair market price, the property is considered a residence. For example, if your property is rented for 160 days, you are allowed up to 16 personal use days. Exceeding this limit reclassifies the property as a residence, which can limit rental expense deductions to the income generated by the property, preventing you from offsetting other income with rental losses.

For minimal rental use, if you rent out your property for fewer than 15 days, you do not need to report the rental income. In this scenario, you cannot deduct any rental expenses, but you can still deduct mortgage interest and property taxes on Schedule A as you would for a personal home.

If the property is used for both rental and personal purposes, you must divide your expenses between rental and personal use. Days spent primarily on repairs and maintenance do not count as personal use days, provided the work is done on a substantially full-time basis. This allocation ensures that only expenses related to the rental activity are deducted. If your rental activity has very low rental days and expenses exceed income, it might be considered a “not-for-profit” or “hobby” activity, further limiting deductions.

Common Deductible Expenses

For rental properties, many ordinary and necessary expenses are deductible. These include costs for managing, conserving, and maintaining the property.

Mortgage interest paid is deductible. This includes interest on loans used to purchase the property and, in some cases, interest on home equity loans used for substantial property improvements. Mortgage points are also deductible, though they must be deducted gradually over the loan’s life.

Property taxes are a common deductible expense. Insurance premiums, including fire, theft, flood, and landlord liability insurance, are also deductible. If you provide utilities for your tenants, such as electricity, gas, water, and trash services, these costs are deductible. However, if the tenant pays these directly, you cannot deduct them.

Costs for repairs and maintenance are deductible, such as fixing a leaky faucet or painting a room. However, improvements that add to the property’s value or prolong its useful life are not immediately deductible. Instead, they are recovered through depreciation over time.

Cleaning costs, often incurred between tenants, are deductible, whether you hire a service or perform the cleaning yourself. Supplies used, such as cleaning products or light bulbs, are also deductible. Advertising expenses, including online listings, print ads, and signage, are deductible. Professional fees, like property management companies, accountants, or lawyers, are deductible if directly related to your rental activity.

Travel expenses are deductible. This includes mileage driven to the property for inspections or repairs. In 2024, the standard mileage rate for business use is 67 cents per mile. If you use a vehicle for both personal and rental purposes, only the portion related to rental activities is deductible.

Understanding Depreciation

Depreciation allows property owners to recover the cost of an income-producing asset over its useful life. For rental real estate, depreciation accounts for wear, tear, and obsolescence. This deduction applies to the cost of the building itself, but not to the value of the land, as land is not considered to wear out or be consumed.

For residential rental property, the IRS specifies a recovery period of 27.5 years using the straight-line method. The amount of depreciation you can deduct annually depends on your cost basis, its recovery period, and when it was placed in service.

The “cost basis” is the price you paid for the property, plus certain acquisition costs like closing costs. If you convert a personal residence, the basis for depreciation is the lesser of its fair market value or your adjusted basis on the date of conversion. Any improvements made after acquisition are depreciated separately.

Depreciation spreads the cost of acquiring the property over many years, reducing your taxable income during that period. It allows owners to gradually recover their investment even as the property may be appreciating in market value. This deduction is part of the tax benefits associated with owning rental real estate.

Reporting Rental Income and Expenses

All rental income must be reported on your tax return. This includes regular rent payments, advance rent payments, and any expenses paid by the tenant on your behalf. For instance, if a tenant pays for a repair and deducts it from their rent, that amount is considered rental income to you, though you can also deduct the expense if it qualifies.

Rental income is reported on Schedule E (Form 1040), Supplemental Income and Loss. This form is designed for reporting income and expenses from rental real estate. You will list your gross rental income and then subtract all your ordinary and necessary deductible expenses.

Accurate record-keeping is essential for completing Schedule E. You should maintain detailed records of all income received and expenses paid, including receipts, invoices, and bank statements. This documentation is necessary to substantiate your claims in case of an IRS inquiry or audit.

Calculate your total rental income and subtract your total deductible expenses. The net income or loss is then transferred from Schedule E to your main Form 1040. If your rental activity results in a loss, there may be limitations on how much of that loss you can deduct, depending on your involvement and overall income.