This guest post is written by Derek Davis, CPA and founder of Shared Economy CPA.
At Shared Economy CPA, we had the opportunity to help thousands of property owners with their finances and taxes. Based on our extensive experience, we’ve been able to identify a few key areas when it comes to reporting your income, and reducing your taxes.
As a property owner, deducting the expenses related to running your vacation rental business can yield substantial tax savings. However, many rental hosts fail to take all of the deductions that they are entitled to. As rental owners increasingly rely on rental portals (such as AirBnb, HomeAway/VRBO or TripAdvisor/Flipkey), they are also missing out on important tax savings. To help you save money, here are the top 3 overlooked tax deductions for rental hosts.
1. Orbirental Subscription Fees
Although Orbirental is free for single property owners up to 3 properties, the Agency version for multi-user / multi properties is a paid service. Orbirental charges a subscription fee, which is billed monthly or annually, for the use of the Orbirental platform. This fee is an expense that you can deduct as a business expense when it is time to file your annual taxes. Refer to IRS Publication 527, Residential Rental Property to learn more about reporting rental expenses.
2. Depreciating Your Own Home
If you own your home and you rent it out from time to time, you have the option to depreciate your primary residence. Use IRS Form 4562, Depreciation and Amortization to depreciate your home beginning with the date in which you placed your home into service (listed as a rental with a portal) and ending when either your home is no longer available as a rental or you have recovered the full cost of your property. You also have the option to use Section 179 to deduct the cost of items that were purchased solely to benefit your vacation rental business.
3. Deducting Fees Paid for Occupancy Tax
Many vacation rental portals, including Airbnb, have started to collect transient occupancy tax (TOT) for local tax authorities in certain cities where their hosts offer rental accommodations. If you have paid the required transient occupancy taxes, you can deduct these fees on your tax return. TOT fees are considered as business expenses and can be deducted on Schedule E or Schedule C, depending on how you file your federal income taxes.
What is the best way to maximize your tax savings? If you don’t want to miss out on important deductions for your vacation rental business, consider hiring a licensed tax professional who can provide specific information about your tax responsibilities.
If you have any questions about how to declare your Airbnb rental income, please feel free to contact us.