In my last article I covered how to report your Airbnb on your taxes. If you haven’t read that yet, I recommend going back and reading it (here). Now I’m going over the write-offs and deductions you can take to lower your income tax and pay the IRS less.
There’s a lot of deduction you can take for your Airbnb or rental. Here are the most common ones:
- Mortgage interest
- Property taxes
- Property insurance
- Wi-Fi / Cable
- TV subscriptions for your guests (Netflix, HBO Max, Hulu, etc.)
- Food, treats, snacks
- Supplies, toiletries, & linens
- Cleaning service costs
- Annual LLC or secretary of state filing fees
- Costs of furniture and fixtures to make the place livable
- Travel to check on the property
- Continuing education such as online courses on rentals
- Airbnb service fees
- Occupancy taxes you pay your state (such as the Florida Occupancy Tax)
- Bookkeeping software costs (such as QuickBooks or AppFolio)
- Home office deduction
Are these all of them? No. But they are the most important ones. If you have questions about other expenses and aren’t sure whether or not you can deduct it, I recommend checking with your tax return preparer or CPA.
How do deductions work if the Airbnb is out of my personal home?
If your Airbnb is out of your home, you may need to take a percentage of your expenses (similar to the home office deduction).
Here’s an example:
During 2021 you rent one bedroom room with an adjoining bathroom out of your home on Airbnb (this is your Airbnb space). Let’s say the square footage of your Airbnb space is 300 square feet, and the square footage of your entire home is 1500 square feet. That means that 20% of your home is used for your Airbnb (300 divided by 1500 is 20%). If your mortgage interest is $12,000, then $2,400 (20% x $12,000) is deducted on your Airbnb and the remaining $9,600 is deducted on your Schedule A, if you itemize.
However, items that are exclusively used for the Airbnb is fully deductible (i.e., you don’t have to use a percentage.) For example, you purchased a work desk for your guests so they have someplace to study or setup their laptop. Since this is exclusively used for the Airbnb space, you would be able to deduct the entire cost of the work desk.
How should I track my expenses?
The best way to track all your all your expenses is to use a separate bank account and separate credit card for your rental or Airbnb. It’s been my experience that when you co-mingle your personal credit cards and bank accounts with your business, it only creates trouble (and I would know, because I used to work at the IRS.)
If the IRS ever audits your Airbnb, they have a right to ask for your business bank statements. You may not want them snooping around in your personal bank account, but if you co-mingle your accounts, you’ll have no choice but to give up the goods (i.e., show them everything in your personal accounts.)
What software should I use?
There are a lot of options for bookkeeping software out there. The gold standard is QuickBooks Online. However, if you’re looking for a cheaper option, you can use one of these instead:
Starting out as an Airbnb host will be overwhelming at first, but in my experience once you get a hang of it, it become easier and pays for itself.