The average Airbnb host earns $13,800 in annual revenue. Most people see this number and start listing without considering that operating costs comprise 25% to 75% of earnings.
Understanding Airbnb accounting basics will help you avoid a bottom line that looks like a sales sticker at Dollar Tree.
1. What Is Airbnb Accounting?
Simply put, Airbnb accounting is the process of recording income and expenses related to your rental property. This sounds easy enough, but getting your numbers precise can be tricky, especially when you manage multiple Airbnb rentals.
So many people raise red flags on tax returns because their financial accounting for Airbnb income is based solely on payouts received. Rental income is more than deposits into your bank account. You must also report your gross earnings (completed payouts) and allowable expenses.
These transactions should be organized into a consolidated record of accounts called a general ledger. This ledger will include all of your rental income (called credits) and expenses (called debits). You have to categorize each entry, ensure the accounts balance, and turn all of this into financial statements for tax authorities.
Tracking every financial transaction is where hosts usually fall off the rails. Your Airbnb tax report will only include gross earnings, withholdings, and adjustments for using the rental site. If you don’t want to foot the tax bill on your gross rental income, you’re responsible for keeping tabs on the rest.
2. Common Airbnb Accounting Problems
Renting out a home, apartment, or room is an easy way to earn extra money. Listing a property on Airbnb and collecting rental income is relatively straightforward. Hosts can start to face problems when tracking all expenses and navigating tax rules and hidden fees.
Tracking Expenses
Hosts may spend money on general maintenance, repairs, cleaning, and many other things that are not tracked on Airbnb. Keeping track of all these expenses and receipts becomes very cumbersome and stressful.
Tips from a Baselane User
“A lot of Airbnb landlords don’t know that all of your utilities are deductible while you have a guest staying there. If you are renting your apartment and listing it as an Airbnb like me, then your entire rent that you pay for that apartment for the period that there’s a guest in there is also fully deductible.” – Jake W. (Owner of 1 Airbnb apartment)
Tax Rules
Depending on where you live, there may be tax requirements at the country, state, city, or property level. In some areas, you could be required to register for a license or get a permit before listing your place. You may also be responsible for collecting and remitting certain taxes.
Rental Fees
Airbnb doesn’t subtract host fees in their 1099-K filings from the IRS. Depending on the structure and listing, these fees can range from 3% to 16%. Guest service fees usually fall around 14% of the booking subtotal. Inconsistent and unreported fees can make it hard to know where your bottom line is.
Reservation Payouts
A payout can include multiple reservations from various listings. This situation creates an Airbnb business accounting challenge for Schedule E categorization and reconciliation. Hosts must decipher which payout belongs to each property to understand income and profit margins.
3. Airbnb Accounting Process
Most Airbnb income is subject to federal and state taxes. Deducting rental expenses is the best way to lower the income you’re taxed on. How you report rental property income and expenses will depend on the amount of space and the number of days a property is used for rental purposes.
How is Airbnb income calculated?
The money you earn from hosting is issued as a “payout.” Airbnb payouts include nightly rates, cleaning fees, and extra guest fees you’re collecting, and Airbnb automatically subtracts taxes and fees from your payout.
Rental income to report on your taxes will be your “gross earnings.” This amount is calculated based on payouts before any fees or refunds were taken out. Your reported income will be higher than your Airbnb payouts, and the difference will be made up by deducting expenses on your tax return.
Tips from a Baselane User
“As an Airbnb host, it’s really important to accurately categorize all of your expenses for each rental property. The more expenses that you can deduct, the less net cash flow you generate, or the less profit you generate from your Airbnb, and therefore the less taxes you pay.” – Jake W. (Owner of 1 Airbnb apartment)
When is Airbnb rental income reported on a tax return?
You must pay taxes on your rental property income if you rent your main residence (house or apartment) for more than 14 days during the year. This includes any money you receive for using the investment property and related services, like cleaning fees and maintenance.
You can rent all or part of your home for less than 14 days in a year and collect rent payments tax-free. This rule is called the “Masters Exemption.” The IRS refers to it as Section 208 (a), which allows a tax break for minimal use of a dwelling space.
What expenses can be deducted from Airbnb's income?
Generally, expenses deducted from rental income are considered to be direct or indirect. Direct expenses are incurred solely for the purpose of running an Airbnb. Indirect expenses are costs associated with owning a rental property.
Direct expenses:
- Service fees
- Cleaning fees
- Advertising
- Household and cleaning supplies
- Registration fees
- Repairs
- Rental software
Indirect expenses:
- Maintenance fees
- Utilities (internet, electricity, water, gas, etc.)
- Rent payments
- Mortgage interest
- Property taxes
- Renovations
- Insurance
Tips from a Baselane User
“”The big expenses for Airbnb hosts are usually management fees. A lot of Airbnb hosts use some kind of management company to help care for the rental property. When I Airbnb my apartment, I’m not in New York living in that apartment. So, I need somebody to take care of the cleaning, Airbnb bookings, and maintenance. You can deduct these management fees from Airbnb revenues. If things break, for example the lock broke on my door, the repairs are deductible. Also, if you own the apartment, you can deduct the mortgage interest that you’d pay to the banks.”” – Jake W. (Owner of 1 Airbnb apartment)
Every dollar you spend is a dollar you don’t have to pay on your rental income. Tracking rental-related costs will help keep more money in your pocket. The IRS will ask for records, so make sure you keep receipts and put expenses in the right categories.
How are Airbnb expenses calculated?
Hosts can write off all or a portion of indirect expenses from rental property income. The amount depends on what part of your home is used for rental purposes and how long it’s occupied. Direct expenses are fully deductible.
Full Property: If you don’t live in the home and never use it for personal purposes, you can deduct all expenses for the days it is rented. For example, if the property is rented for 150 days, you can deduct 41% of your expenses from your rental income (150 ÷ 365 = 41%).
Shared Property: If you rent part of the space while living in the home, you can deduct a portion of the expenses for the rented days. For example,150 sq ft out of 1,200 total sq ft is rented for 65 days. Let’s say your total expenses are $10,000. You can deduct 18% (days rented) of 12.5% (space rented) of $10,000 from your rental income (18% x $10,000 x 12.5% = $225).
What are the basics of Airbnb accounting?
Making money is great, and paying taxes on your hard-earned income is significantly less exciting. Learning the basics of Airbnb accounting will help you keep a bigger piece of the pie.
Open a bank account
Add an Airbnb accounting payout method for a bank account just for your rental properties. This keeps your rental income separate from your personal funds. Using separate bank accounts makes it easier to record transactions and calculate expenses for rental and personal use.
Tips from a Baselane User
“Airbnb landlords take on quite a lot of revenue and have a lot of funds coming in. You want to make sure that your bank accounts earn a good interest rate on those funds that you’re taking in.”
– Jake W. (Owner of 1 Airbnb apartment)
Record income
Tracking rental expenses is the first step to saving money. Putting them in the right categories for each property is how you will save time when filling out tax forms. There are 15 categories for deductible expenses.
Record expenses
If you have multiple listings with check-ins on the same day, funds will usually be deposited as a single payout. This makes it difficult to determine which properties are making or losing money. Airbnb accounting lets you split your payouts by property or percentage into multiple bank accounts using routing rules.
Your rental income should be a breakdown of your incoming revenue. This includes reservation payouts, cleaning fees, guest fees, damage reimbursements, and cancellation fees. Each one will be a separate line item listed under rental income.
Expense categories:
- Advertising
- Auto and travel
- Cleaning and maintenance
- Commissions
- Insurance
- Legal and other professional fees
- Property Management Company fees
- Mortgage interest
- Other interest
- Repairs
- Supplies
- Taxes
- Utilities
- Depreciation expense or depletion
- Other
If expenses exceed your income, this is considered a “loss.” Airbnb hosts typically can’t take a loss on passive income. In certain situations, a loss can be deducted from future rental income.
File taxes
Taxable rental income must be reported on Schedule C or Schedule E of form 1040. Most Airbnb hosts will report income on a Schedule E. Real estate owners providing substantial hospitality services to guests will use Schedule C.
Airbnb will send Form 1099-K to hosts with more than 200 reservations or earn more than $20,000 in a calendar year. If you don’t receive a 1099-K, it doesn’t mean you’re off the hook and still have to report rental earnings on your income tax.
How does Airbnb collect taxes?
Airbnb automatically collects local taxes from guests at the time of booking for rental properties in the United States. If you’re eligible to collect a custom tax or additional taxes, Airbnb business will collect these amounts and pay them out separately from your payout. This doesn’t change the taxes due on payouts you receive as a host.
FAQs
Most hosts pay 3%, but some pay more for Plus Airbnb listings or strict cancellation policies. Host-only structures deduct 14% to 16% from the payout. Airbnb guest service fees usually fall around 14% of the booking subtotal.
Airbnb collects and remits local taxes on behalf of hosts in certain states and cities. The system determines which taxes are applicable based on the listing address. If there isn’t an option for local tax collection in your area, you are responsible for calculating, paying, and remitting taxes.
If you don’t provide the correct W-9 taxpayer information, Airbnb will withhold income taxes from your payouts. The amount withheld can be up to 30%. Airbnb will send a report of income withheld. You can claim withholdings as a tax credit on your returns.
Airbnb collects and pays certain occupancy taxes for hosts in specific jurisdictions. In some areas, you may still be required to manually collect occupancy taxes. This can happen if Airbnb collects regional taxes but not local taxes.
Some states require people to charge sales tax (also called lodging tax) on income earned from short-term rentals. On average, sales tax is about 12% of gross rental income. These taxes are separate from income tax collected by the IRS. Hosts are responsible for collecting and remitting sales tax to the state, city, or both.
While Quickbooks is great for general Airbnb accounting, it’s not designed for rental property management. There is a learning curve for the set-up that requires you to manually enter income and expenses. This isn’t feasible for most people managing multiple rental properties and accounts. Unless you’re a Quickbooks pro, you may be better off using accounting software that’s purpose-built for property management.
