Is Airbnb taxable?
- Nov 19, 2018 | Jennifer Sokolowsky
The short-term rental business is booming, and it’s not hard to see why. Online rental marketplaces such as Airbnb, HomeAway, and VRBO make it easy for hosts to find guests and take care of bookings.
Guests are growing in number as many find that they prefer short-term rentals to hotels or other accommodations both for price and comfort as well as the opportunity to experience a destination more authentically. For both hosts and guests, short-term rentals can be a win-win.
However, hosts need to keep in mind that running a short-term rental is a business. And where there’s business, regulations and taxes aren’t too far behind.
For short-term rental hosts asking the question, “Is Airbnb taxable?” the short answer is yes. A longer answer is: Short-term rentals may be subject to several different types of tax and the taxability of a short-term rental depends heavily on where that rental is located.
Location, location, location
It’s important to know that many taxes related to short-term rentals are determined by the rental’s location and tax jurisdiction. While federal income tax is levied on the national level across the United States, most taxes are more local in nature and are determined by the governments of states, counties, cities, or other administrative areas.
For any given short-term rental unit, you may be dealing with several different types of taxes in several different tax jurisdictions, including property tax, income tax, sales tax, lodging tax, and more. It’s up to you to be aware of the tax obligations that apply to your short-term rental.
Types of short-term rental tax
Short-term rentals may be subject to more than one type of tax, but these are some of the most common taxes that may apply.
If you own a short-term rental property, then you’re most likely paying property tax on it, which is levied as a percentage of the value of the property. Property tax can be levied on the state or local levels. In many locations, different rates apply to residential property vs. commercial property. Although some tax jurisdictions have proposed taxing short-term rental properties at commercial rates, in most cases, they’re currently taxed at residential rates. However, primary residential properties may be taxed at different rates than second homes or investment properties in some jurisdictions.
Income generated from short-term rentals is subject to income tax at the federal level as well as in most states. However, it’s important to be aware that if you offer your property for short-term rental for only 14 days or less during the year, then you don’t need to pay income tax on that rental income.
However, if you do rent a property out for short terms for more than 14 days, income from that property will be taxed. The good news is that you can also deduct expenses related to running your short-term rental business.
When you pay property tax or income tax, you pay it directly to the government from your own pocket. Lodging taxes are different because guests actually pay the tax, usually based on a percentage of the cost of their stay, although some lodging taxes are charged as flat fees.
As a short-term rental host, you collect the tax from your guest and pass it on to the tax authority. Although you don’t need to pay this tax out of your own pocket, you’re responsible for making sure the government receives it. Failing to comply can result in fees, penalties, and even legal action.
Lodging taxes have many different names, depending on your tax jurisdiction. They may be called sales taxes, accommodations taxes, tourism taxes, hotel taxes, gross receipt taxes, transient taxes, bed taxes, and more.
Your lodging tax obligations all depend on your location. This will determine your tax jurisdictions, which taxes you need to collect, tax rates, and the process you have to follow.
You can be governed by more than one tax jurisdiction, and in many locations, the total lodging tax rate you charge your guests is made up of many different taxes from different jurisdictions. Often, this means you’ll need to register and file with more than one tax authority.
For example, if you operate a short-term rental in New York City, you’re required to collect a New York City Hotel Room Occupancy Tax, which is collected by the city, while New York State collects state sales tax, city sales tax, and a Hotel Unit Fee of $1.50 per day on short-term rentals.
Lodging tax process
Complying with lodging tax obligations usually consists of three steps: registration, collection, and filing.
Registration is usually required before you can legally start collecting lodging taxes from guests. You can usually do this online and once you register, you’ll receive any tax permits, certificates, or licenses that are required, as well as due dates and other information you’ll need for filing tax returns.
Once you register, you can start collecting lodging taxes. You’ll add these to your guests’ bills and collect the tax along with guest payment for the stay.
Then you’ll need to file lodging tax returns on a regular basis to report your short-term rental income. In many jurisdictions, you’re required to file lodging tax returns on a monthly basis, but you may file quarterly or annually, depending on the amount of short-term rental income and the jurisdiction.
When you file, you’ll also pay any tax due. In many jurisdictions, you’re required to file lodging tax returns even if you have no short-term rental income to report or have lodging taxes to pay.
Help with lodging taxes
Tax authorities are paying increasing attention to short-term rentals and the tax revenues they can generate, and more and more jurisdictions are cracking down on short-term rental operators who fail to follow the rules or evade taxes. This means there’s more motivation than ever before for short-term rental hosts to take lodging tax obligations seriously.
Although compliance can be complicated and time-consuming, MyLodgeTax can help. MyLodgeTax can simplify lodging tax compliance by taking care of registration and automating filing for all the jurisdictions that apply to your short-term rental.