The tax on rental income would typically be categorised as accessible, but you’re entitled to claim tax deductions for the different expenses associated with having people rent out the property. The amount you have to pay in taxes depends on how much money you earn, which means you may need to set aside 20 to 49 per cent of your earnings for taxes. What you owe also depends on the amount of tax that is deducted from your other sources of income. This makes it necessary to obtain help from a tax agent to ensure the calculations are accurate and you’re informed of the laws.
Short-term rental hosts must pay Schedule C or self-employment tax, which includes social security and Medicare tax. You can also expect to pay local and state occupancy taxes on your rental income. You have the option of paying PAYG instalments if your income is inconsistent or you want more convenience. It means you won’t have to worry about getting a big tax bill at the end of the year.
What deductions can Airbnb hosts claim?
Maintenance
The money you spend to maintain the property or perform repairs is eligible as a tax deduction, which makes it necessary to keep thorough records and recipes. You can write off the cost of repairing a leak or replacing the new roof to maintain a desirable, safe, and functional setting.
Utilities, fees and insurances
The money you spend on water, power, and sewage are all tax deductions to report. The homeowner’s insurance or private mortgage insurance (PMI) you pay each month is also eligible. The fee you pay to Airbnb or other websites can also be included in your tax dedication and should consist of the dates of your payments. You can also report fees you paid to collect the rent.
Marketing and promotion
Whether you pay for Facebook or Instagram, the money you spend to promote your Airbnb and attract more renters is considered to be deductible.
Financial and asset-related issues
You can also deduct any items stolen from the property or if the furniture was damaged when you had people renting out the property.
Personal costs of managing the property
You may have personal expenses associated with managing your Airbnb, which includes upgrading the furniture or paying for cleaning services.
Council rates
Keep thorough records of your council rates, which is known to fluctuate each year and can be written off.
Claiming deductions:
How do you claim them?
You can claim your Airbnb tax deductions by obtaining the help of a tax preparer and by itemizing the tax deductions. You’ll need to prepare a Schedule C attachment, which is considered to be a separate calculation from your net profit. Avoid deducting anything that you do not have proof of paying.
How much can you claim?
You can only claim the number of days or weeks you rented out the Airbnb, which may be four weeks or 50 weeks, depending on how much business you received. You can only claim what’s related to running the Airbnb and can’t claim anything associated with your personal use of the home.
Airbnb & capital gains tax (CGT)
Pros
- You can obtain a lower Airbnb and capital gains tax rate when you sell the property.
- Defer capital gains tax when selling one property and buying another.
Cons
- It doesn’t apply to your inventory.
- It doesn’t apply to corporate income.
Airbnb & goods and services tax (GST)
Many people may assume they need to be aware of GST on residential rent if they use their property as an Airbnb. GST doesn’t apply to residential rentals, which means it’s up to you to add the amount to your rental property when reporting it to the government. You aren’t liable for GST on rent for the rates you charge and the money you collect. This also means you also can’t claim any Airbnb GST credits for any associated costs.
Tips for Airbnb hosts:
Keep all of your receipts
Keep every paper receipt and digitally scan everything, so you have evidence of your expenses if the IRS contacts you in the future.
Obtain tax advice
It can be easy to owe different types of taxes for your Airbnb. This makes it necessary to talk to an expert to avoid missing anything. A qualified tax professional will be able to take a close look at your earnings and determine how much you owe.
Depreciate your property
Many people also forget to consider the depreciation of their property and any money they spend to upgrade the kitchen or remodel the bathroom.
Record your bookings
You need to track all of your bookings and also vacancy dates throughout the year so you can report how many times someone uses the property. This will ensure your reported earnings and the taxes you owe are accurate. Tracking how often the property was rented can allow you to communicate your deductions for the Airbnb taxes.
How to hire a tax accountant
Read online reviews
Consider looking at a review of former customers online to determine how respected a tax accountant is before you use their services. Look for someone with a high rating without many complaints to ensure you hire someone reliable and experienced.
How to create an accurate estimate
Determine your different sources of income
Consider the number of places you earn an income. The more income you earn in different areas, the more time it’ll take to prepare your taxes, which will mean you can expect to pay more for tax preparer services.
Licencing and qualifications
You’ll end up paying more for tax accountants with more credentials and experience because they’ve spent the time and money to become educated and credentialed. If you hire someone reputable and with experience, it can allow you to save more money. Furthermore, it will ensure they’re aware of all of your Airbnb tax benefits.