AirBnB is a good way to transform your vacation houses or extra rooms in your apartment to additional income. There are a lot of success stories that may inspire you to venture into this kind of economy business.
But before you invest into this business, there are some important things that you need to consider.
A blog is recently posted today by Bigger Pockets. Brandon Hall, the writer of "The Tax Impact of Airbnb & Short-Term Rentals: What Investors Should Know," shared a few insights. He said that people who want to do this AirBnB business enterprise have to learn about the strategy to alleviate changes to their tax liability. If the owner or investor is not careful, "they may end up subjecting the income earned from Airbnb or similar hosting services to self-employment taxes at an additional 15.3% rate," he said.
In his blog, he explained some ways to avoid paying additional rate.
According to him, the first thing that one must do is to report rental income earned to IRS. He said there is no other choice but to report it. Anyone who has his or her place rented out for over 14 days, has to be reported as rental income on Schedule E. The advantage of reporting the rental income to Schedule E over Schedule C is that it minimizes self-employment taxt liability. "Reporting income on Schedule C will also generally disqualify that income/loss from the generous passive activity loss deduction, which can be up to $25,000 pending you meet AGI thresholds," he added. He explained further that reporting rental income on Schedule C would no longer become a rental activity but to a certain extent labeled as a business already.
According to Nolo, any rental activity made less than 14 days is tax free. According to Stephen Fishman, one can have his place rented out up to 14 days per year, and the owner can have all the rental income received tax-free. One doesn't have to report it to the IRS. This provision is found in IRC Sec. 280A(g).
On the other hand, Business Times has reported about economy business coming under attack lately. This is because some AirBnB owners reportedly fail to conform with insurance regulations, building codes, and other rules side from tax issues.
In closing, prior to engaging in AirBnB and short term rentals, there are three things to consider, insurance regulations, building codes, the rental period (over 14 days need to be reported to IRS) and most importantly report taxes to IRS on Schedule E.
