Day 7: tracking income and expenses

[Christine1426]

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!) 

[Huma0]

@Christine1426

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.

[Kyla11]

@Huma0 If you're renting a room in your home you can claim under the 'rent a room' scheme. You then get the choice of either having the first £7500 tax free and paying tax on the rest of your room earnings or, you can go the route of accounting for all expenses and completing your tax return with supporting paperwork (receipts etc) Hope I'm not teaching you to 'suck eggs'. 

[Pete28]

@Huma0

I believe the uk recently stopped allowing most expenses against rental income - previously you could deduct interest and other expenses.

I don't think the uk ever had depreciation for rental property to the extent that US does. 

[Huma0]

@Pete28

Really? That's news to me and my accountant hasn't mentioned it, but then I haven't sent him all my paperwork yet...

I am sure I will find out soon enough if that is the case.

You are probably right about the depreciation aspect. My accountant is pretty thorough so I imagine either he would have mentioned that if it was applicable, or whatever amount was involved was already covered by the personal allowance.

[Huma0]

@Kyla11thank you! Yes, I already do all of that, with utility bills, expenses etc. etc. although most of this falls intot he allowance. My question was more about the 'depreciation' aspect and whether that applies in the UK.

[Cecelia13]

what is earnings . The amount you receive or gross

[Cecelia13]

please what iis earnings the amount you receive or gross

[Clara116]

@Christine1426 Thanks for your informative posts.....much needed by many hosts out there. 

Many are having costly hobbies -------------but, some of us are running businesses and it pays to be smart and do the right steps to help out our business and make the most of it. 

thanks again, Blessings, Clara

[Lynda172]

I would love it if ABB would add a feature to keep track of expenses and include the ability to upload pictures of receipts. 

[Dora133]

Great article, depreciation is a good point for me.  Thank you!