Airbnb rentals, since its inception, have been profitable for owners, particularly in Las Vegas, where people from all over the world come and go. While this business has good returns on investment, property owners must still know how they can make tax deductions for their Airbnb property in Las Vegas.
Paying Taxes as Landlords
Airbnb hosts often settle their taxes as landlords. When you look at it from the perspective of taxation, it is very much different from being “in business.” Why? Since what you do is only to provide a rental space and collect payments from tenants.
And so, the IRS looks at this as merely a passive activity that comes with specific regulations on losses and the allowable deductions you can make. In short, the income that the landlord’s profit or loss is first added to other income or loss to come up with the total of the tax bill.
You have to know that you can only make deductions for your passive activity, which is equal to the income from that source. You cannot, in any way, contract a loss that is more than your income. For instance, your passive activity income for a year is $6,000, and your expenses totaled $7,000. You cannot use the $1,000 off from your tax return to try to offset your other income.
Airbnb Hosting is a Small Business Entity
When you provide Airbnb rental services, such as breakfast or laundry services to your clients, your taxes and its corresponding deductions are similar to a small business. Before we delve deeper into how you can take deductions, you must first qualify if your Airbnb hosting qualifies for reporting and tax filing.
If you are renting your house for less than 15 days in each year, the income you earn from this does not qualify. Hence, you don’t need to report the income and make any tax deductions.
How Can You Deduct Expenses?
Your expenses as a host depend on the number of days you have renters on your home and the total rental space you have. Based on the Schedule E of the IRS Form 1040, in which rents are recorded as supplemental income, landlords must provide the total number of days that you have your space rented out. It must be rented at a fair rental price.
When making deductions, you must only include the items that apply to the rented space and include only the days when it was rented at a fair rental price. The expenses you can deduct are:
Host expenses: Expenses incurred as an Airbnb host. You can deduct this in full, depending on the set IRS limits. Payments that you can deduct are costs related to hosting, such as advertising your space.
Shared expenses: These are the expenses that you can only deduct for the specified space and the inclusive dates. You must separate the costs between personal and rental use.
When you are offering a part of your home for rent, you must know the floor space it takes up. So, if your entire home measures 2,500 square feet and you are renting out 120 square feet, the square footage of the area for rent is 4.8% of your entire home. Given this information, you can calculate shared expenses as follows:
Scenario 1: Say, you are renting your space for at least 70 days each year, and you live in your home for at least 295 days, and you have indirect expenses totaling to $1,200. Your total rental time is equal to 19%. Given this, you can deduct 19% ($228) of your indirect expenses as part of rental costs.
Scenario 2: You are renting your space for 70 days each year. The total area of the rental room is equal to 4.8% of the entire home. In this method, you can only deduct the indirect expenses incurred during the 70 days and only for the total space used. So, you get $1,200 as incidental expenses multiplied by 19% (the 70 days rental time). You get $228. Then, multiply $228 to 4.8% to arrive at $10.94 as your indirect expense.
What are the Allowed Tax Deductions as an Airbnb Host?
As any tax reporting, you must keep all proof of expenses that you will use for your tax deductions. Make sure that all those expenses are solely for the business and does not include any personal use. Here are some of the allowed tax deductions:
Advertising: Advertising for a home rental is considered a host expense and, as such, cannot be fully deducted.
Travel Expenses: Divide travel expenses between the rental business and personal driving. You may deduct business-related meal expenses at 50%.
Maintainance and Cleaning: You can only deduct expenses from cleaning the home during rental days.
Commissions: If you pay commissions to other individuals to find renters for your place, you can deduct this as a host expense.
Home Insurance: Home insurance costs are under shared expense.
Legal and Professional Fees: Most of the time, these fees are business-related. As such, there is no need to divide them.
Interests: If you are paying interest on a home loan, divide expenses using the shared method.
Repairs: Repairs on rental properties can be deducted in full. For whole-house maintenance, you must divide the cost using the shared method.
Taxes: Business-related taxes may be deducted in full. For property taxes, divide it.
Supplies: Rental-related supply expenses are deductible in full. If the costs also include supplies for your home, divide it.
Utilities: Home utilities must be divided.
Depreciation: Your home’s depreciated value should also be divided.
The Bottom Line
Making any tax deductions for every business varies widely. If you are unsure of how to make tax deductions as an Airbnb host, don’t hesitate to consult a tax expert or to use tax prep software when you prepare your tax return as an Airbnb host.