If you are renting out a part of your home, a separate dwelling, or an investment property, there are some important things you need to keep track of for your income tax return.
Generally, you'll report the income you receive, less the expenses and depreciation on the rental space, to calculate a net taxable income. In the US, you'll include this info on the Schedule E of your 1040 individual tax return. You may also have local and state tax issues to address, check with those tax departments to find out what those rules are.
**** You will receive income (and incur expenses) for your rental unit. You need to keep track of that information. You can use a notebook, rely on your property manager or hosting service, or use a spreadsheet to record your income and expenses. Fortunately AirBnB does a great job of keep tracking of your income - on the Progress / Earnings tab
**** Depreciation on your rental space can also be expensed.
**** If your rental space is not a separate property, but a part of your main residence or a guest house on your property, then calculating your expenses and depreciation becomes a bit more complicated - you'll have to allocate those shared expenses based on the percantage of space used for dedicated rental purposes. For example, a 800 sq foot rental space in a 2400 sq foot house would be allowed 33% of certain expenses to be allocated to the rental property, such as utilities, mortgage interest, and real estate taxes. You would also have to factor in the number of days the space was actually rented out. For example you rent your space out 274 days of the year, then you'd apply that percentage (274/365 = 75%) to the 33%, or 25% of your shared expenses can be allocated to the rental space.
*** Direct expenses related to your rental property can include supplies (linens, paper products, soaps), cleaning fees, repairs. These are items that you ONLY used for your rental space, and can be completely subtracted from your gross rental income.
The net income (total income - total expenses) on your rental may be subject to income taxes. Thus, it is VERY important to do a good and thorough job of keeping track of your expenses (along with being a great host!)
Good post Christine, I am sure many hosts 'fly by the seat of their pants' when it comes to declaring hosting income....a bit like insuring their properties for short term rentals! Many just do the Ostrich in the sand bit and say...'I will take the risk'!
There are lots of reasonable accounting franchises around like H&R Block and similar who will prepare profit an loss statements cheaply.
I have always found if you approach an authority and ask for advice they are pretty good to deal with....if they come to you demanding answers....god help you!
Good on you Christine, we are heading for a good month here on the CC with some some great content!
Great points! I recommend hosts throw receipts into a box or envelope because they add up over the course of a year. Easy to forget how many rolls of toilet paper or paper towels you bought, or the new sheets, and laundry detergent. Even boxes of tea or coffee and creamer. Snacks and bottled water. Whatever. I should keep a spreadsheet but I throw it in an envelope to make it easier at the end of the year to see what I spent.
And yes - depreciation of the space is critical. Also the furniture, etc. if a separate space from your own home. We rent out our whole space but keep a separate cabinet for our own things when we have family staying there or when we are using it for ourselves. That way there is not much "comingling" of items.
ANd we invested in a Nest which we can adjust when away from the building. Makes the heating and cooling costs much lower to have it adjusted when its not rented.
this is great advice.
I was put my head in the sand till i discovered many things can be buiness expenses.
I am retired and living off of government help.
Things were very tight till i discovered airbnb. It is something i can do even with my limited abilities.
I loved to travel but my ms has made tgat very dificult.
So now i travel by getting to know my guests.
My first guest found my blanket made it hard for him to breath so i went out and bought a new comforter set. If i used your box system i would have the receipt.
Great topic @Christine, for I really needed this when I first started. Great for newbies! Unfortunately, I procrastinate when it comes to accounting. But I’ve got there....
- I keep all my receipts in one tray and label what they are straight away. Using a clip to hold them.
- I now need to log my odometer for Australian ATO, so have put a log book in the car for shopping kms..I always forget this one!
I’m not listed as a business, and am a standard PAYE. I’ve made an excel spreadsheet for the financial year, but here in Australia our PAYE tax year is 1 July through to 30th June. So that’s the reservation and transaction information I import as CSV from the Airbnb website. Download and save as an Excel worksheet. Then I add to a new excel book and have a separate worksheet for expenses.
To avoid my bigger than Ben Hur accounting sessions:
- I retreat with coffee and cake, or wine 🍷 glass and nibbles... whatever gets me into the study.
- I’m now setting myself “regular detention”, to enter the information on the spreadsheet monthly.
- I now have set myself up to scan the receipts as a PDF for each month, in retrospect. (This has become important as many new cash register receipts fade, and then you lose your evidence to claim.) it also means I get to scan utilities statements, council rates etc and they can then be filed away, without stock piling.
- This has made it easier for tax. I was scanning each receipt via my phone, but that was more cumbersome to the iCloud and not well labelled. This way I save each PDF with the name and month of the year - Airbnb tax receipts.
They can then be saved on the desktop, plus an external device & iCloud in that tax year’s airbnb folder.
🙌🏼 MInd, you really need to check out tax agents. The first year I had a very unhelpful, and uninformed agent. Wouldn’t touch them with a barge pole again! Lol...The second year was someone who had tolerance with a learning host, and good tax understanding, and had crammed herself some studies in Airbnb ATO tax requirements. Even though my excel sheet is not exact, because I still don’t understand the process, she was very happy as she just calculated from the separate columns and info. I asked could I do it differently and she said it’s fine! So now it’s a monthly reconcile. ✔️
💡If you do it better, let me know as I’m never too old to learn! I’m mindful that a cyclone could blow it away, so the hard copy needs to not be the priority in any part of my life. 🌬💨💦
As an aside, now I’m decluttering and getting better organised. I’ve in turn been scanning old photographs and documents as well! I’ve been able to then place on a USB and give to other family members for their keepsakes. Giving them their photo albums and keeping just a few photos and a set on a USB.
Thanks @ Gillian. We were told lack of proof to 500kms work related was removed and now requires documentation for every kilometre. Hence the log book. But really, not too worried as I log for my main job. Will query it at my next appt.
Great article, thanks.
It's certainly a headache keeping up with expenses, taxes etc
We even have to declare our artesian well !
Water here in the Greek islands, as in other parts of the world, is a precious commodity, but our tap water tastes awful ( from the desalination plant). ;-/
@Christine Your post is full of useful information. Thanks for posting.
I am already set up as a business, so I got my business insurance to cover the Airbnb. Just mentioning this here, as many insurance policies now specifically ban or require a separate rider for hosting either a room or separate dwelling. I fear that many hosts out there have no idea that they may not have insurance coverage if a renter damages their property or gets injured on their proerty. And, boy, that would have a huge impact on income and expenses!
My rates include what I have to pay to the State of New Mexico for Gross Receipts (which is distinct from Resort fee Tax, which Airbnb does collect as a line item.) Here, as in many states, rentals of less than 30 days duration are subject to Gross Receipts. Currently, this is 7.75 % for me. Since Airbnb does not have a space for a line item for this, I say tax is included in my price, and back it out when taxes are due, which is a bit of a pain in the neck to do.
Thank you for the useful post. I have an accountant, mostly because I don't want to make mistakes but also because I'd never get it all done if I didn't have someone pushing me!
As I host in my own home, I originally just expensed the bigger things, like a percentage of the utility bills. However, over time, I have learnt to consider things like laundry detergent as there is no way I'd be using that much if I didn't have all those sheets and towels to wash.
However, I've never heard about the depreciation element. Does that apply to hosts that rent rooms in their main residence and does anyone know if this applies in the UK? I have never heard about it before.