Tax Day Complications for Airbnb Landlords

• April 17th 2014

by Lark Turner

How are taxpayers filing their Airbnb income? Not without a headache, if they’re approaching the problem at all, according to a report from Vice.

While Airbnb, the fast-growing business that allows people to rent out all or part of their homes to short-term renters, has expanded rapidly since its founding in 2008, it’s also spent plenty of time fending off accusations from the hotel industry that it is avoiding taxes. That same scrutiny has begun to shift to homeowners, too, some of whom pull in quite a lot of money through the site without paying taxes on the income.

But Airbnb income is taxable income, and as the company gains legitimacy, it’s been working with municipalities to ease tension with regulators and the hotel lobby. Most recently the company announced that it would begin charging renters a hotel tax in Portland and San Francisco as part of its Shared City initiative. But in fact the company’s fine print puts all liability on the landlords and renters.

UrbanTurf reached out to Airbnb and DC earlier this year for details on how landlords can make sure their units are legally rentable to short-term tenants, and the city got back to us with a set of regulations that apply to such housing. Airbnb didn’t comment for that article except to note how popular the service is in DC — and how quickly it’s expanding here.

The Vice article looks at how freelancers use Airbnb to supplement their income in high rent cities and the difficulty in understanding how that income should be reported.

From Vice:

“On the one hand they need the extra income; on the other hand it’s not easy in this city to be in compliance,” said Jonathan Medows, a Manhattan CPA who also specializes in freelancers. “They’re kind of caught between a rock and a hard place.” The CPA said it’s the company that should be scrambling for a solution, since the site makes money no matter what users end up owing or how hard it is for them to pay.

There are a couple IRS-related complications when it comes to Airbnb income. For one thing, some of the expenses used to bring in renters are deductible; others aren’t. For another, different states and localities may have different rules about what is and isn’t deductible when it comes to the rental income. Susan Lee, a tax professional who works with freelancers, provided an example of this problem to Vice:

Lee recently consulted a cash-strapped couple who’d used Airbnb to keep up with a rent beyond their means, only to find they now owed more in taxes than they’d made from the service, in part because of deductions they’d lost in the process. “Home offices have to be exclusively and regularly used,” Lee explained, referring to a popular freelancer deduction that also helps offset rising rents. “You can’t say it’s a home office on Tuesday at 3 but rent it out on Tuesday at 5.”

Vice noted that Airbnb has recently updated its terms of service to reflect freelancers’ desire to pay their taxes. Those don’t go into effect until April 30, though, so 2013 taxpayers are out of luck (and already late).

This article originally published at https://dc.urbanturf.com/articles/blog/tax_day_headache_for_airbnb_landlords/8371.