@Charmaye0 Any time you cancel a confirmed reservation request, you will be automatically penalized by Airbnb unless you have extenuating circumstances as a reason for cancelling (see link below).
Many hosts, not realizing this, cancel a reservation because a guest sends them a message ask the host to cancel, or, because a guest has sent a request to cancel through Airbnb's cancellation tool. If the host is able to honor the reservation as booked, then the host should not cancel....the guest must cancel if they are the ones who want the cancellation.
The Airbnb cancellation tool (see link below) is generally used when a host wants / needs to cancel because they want to increase the nightly rate, decide they don't like the guest, have double booked, have a better rental situation, etc. and the host does not cancel so they don't get the cancellation penalty. In these situations, where it is the host who wants to cance, then the host must cancel, not the guest. Here's what the host sees when a guest uses this tool:
Note that even if the guest requests that a host cancel, it clearly states that host penalties will apply if the host cancels and hosts are given the opportunity to keep the reservation as is.
Here are the links that will help you:
https://www.airbnb.com/help/article/990/i-m-a-host--what-penalties-apply-if-i-need-to-cancel-a-reser...
https://www.airbnb.com/help/article/1320/what-is-airbnb-s-extenuating-circumstances-policy
https://www.airbnb.com/help/article/1250/what-should-i-do-if-my-host-needs-to-cancel
If your guest asked you to cancel through Airbnb's message thread, you should contact Airbnb to get the penalties waived.
Again, unless you are not able to honor a confirmed reservation, you should never cancel. Even if the guest has extenuating circumstances, they should contact Airbnb for consideration of waiving any cancellation policy the host might have.
I hope this helps!
Clare