What Airbnb Expenses Can You Deduct on Your Taxes?

Operating a short-term rental through platforms like Airbnb involves tax considerations. For hosts, understanding which costs can be subtracted from rental income allows for accurate tax reporting and can impact the amount of tax owed. This process requires following specific Internal Revenue Service (IRS) rules that govern how rental activities are classified and how expenses must be treated.

Determining Your Rental Activity Status

The first step in handling your rental’s finances for tax purposes is to determine its classification under IRS rules, which hinges on two main tests related to rental and personal use. The “14-day rule” is an important threshold for hosts to understand. If you rent your property for 14 or fewer days during the year, the rental income you receive is not required to be reported on your federal income tax return. Consequently, you cannot deduct any expenses associated with that rental activity.

The amount of time you personally use the property is also a factor. Your property is considered a residence for tax purposes if your personal use exceeds the greater of 14 days or 10% of the total days it was rented at a fair market price. When this threshold is crossed, you must allocate expenses between rental and personal use, and you cannot deduct rental expenses in excess of your rental income.

Categorizing Deductible Expenses

After determining your property’s tax status, you must categorize your expenses. These costs are separated into two types, direct and indirect, based on whether the expense is for your rental guests or for the upkeep of the entire property.

Direct Expenses

Direct expenses are costs incurred solely for the benefit of your rental activity and are 100% deductible against your rental income. These are costs that would not exist if you did not have paying guests. For the 2024 tax year, platforms like Airbnb are required to issue a Form 1099-K to hosts who receive over $5,000 in payments. It’s important to remember that all rental income must be reported on your tax return, whether or not you receive a Form 1099-K.

A primary example of a direct expense is the service fee charged by platforms like Airbnb. Other common direct expenses include supplies provided exclusively for guests, such as:

• Single-use toiletries
• Coffee
• Snacks
• Welcome gifts

The cost of professional cleaning services between guest stays and laundry service for linens and towels used by renters are also fully deductible. Money spent on marketing your listing, including professional photography or listing fees, also falls into this category.

Indirect Expenses

Indirect expenses are costs for owning and maintaining the entire property, benefiting both personal and rental activity. These expenses are not fully deductible and must be allocated between the two uses. Common examples are mortgage interest and property taxes. The portion of your mortgage interest for the rental use is treated as a business expense and is not subject to the same limits as a primary home mortgage.

Other indirect expenses include homeowners insurance, private mortgage insurance (PMI), and utilities like:

• Electricity
• Gas
• Water
• Internet

General repairs and maintenance that benefit the entire property, such as fixing a leaky roof or servicing the HVAC system, are also considered indirect. For those in a community with a homeowners’ association, the associated HOA fees are another indirect cost that must be divided.

Calculating Deductions for Shared Use

For properties with both rental and personal use, you must allocate indirect expenses. The IRS-sanctioned method is based on the number of days the property was used for each purpose. To calculate the deductible portion, divide the total days the property was rented at a fair market price by the total days it was used for both rental and personal purposes. This percentage is then applied to your total indirect expenses.

For instance, if you rented your home for 90 days and used it personally for 30 days, the total usage is 120 days. The rental-use percentage is calculated by dividing the 90 rental days by the 120 total use days, which equals 75%. You could then deduct 75% of your eligible indirect expenses, like mortgage interest and property insurance, from your rental income.

An alternative allocation method may be used if you rent out only a portion of your home, like a single bedroom. In this scenario, you can allocate expenses based on square footage. Divide the square footage of the rented space by the property’s total square footage. For example, if a 150-square-foot room is in a 1,500-square-foot house, you can deduct 10% of indirect home expenses.

Required Documentation and Recordkeeping

To substantiate deductions, meticulous recordkeeping is required. The IRS requires documentation to prove your expenses, including receipts, invoices, and bank or credit card statements showing the date, amount, and nature of the cost. For every expense, from guest supplies to major repairs, a paper or digital trail is needed.

An important document is a detailed log tracking the usage of your property. This log should clearly distinguish between days the property was rented to guests and days it was used personally. This information is the basis for the allocation calculations for indirect expenses. Without this evidence, it becomes difficult to defend your expense allocations in the event of an IRS audit.

These records should be organized and stored for several years after you file your tax return, as the IRS has three years to audit a return. A well-organized system for your financial records prepares you for potential audits and simplifies preparing your tax return each year.

Reporting Expenses on Your Tax Return

For most short-term rental hosts, rental income and expenses are reported on Schedule E (Form 1040), Supplemental Income and Loss. This form is used to calculate your net rental income or loss by subtracting all allowable direct and allocated indirect expenses from your gross rental income.

Some hosts may need to use Schedule C (Form 1040), Profit or Loss from Business, instead of Schedule E. This is required if you provide substantial services to guests, similar to a hotel. Substantial services include providing regular meals, daily cleaning, or concierge services. Reporting on Schedule C classifies your rental activity as a business, and your net income will be subject to self-employment taxes in addition to income tax.