air bnb

[CAROLENSTROM]

I am looking for some guidance for airbnb. Can anyone tell me if they know anything about them? I have one this year and I am trying to figure out the best or correct way to report it on the tax return. Schedule C business or Schedule E rental? Anyone have any information?

[Roland Slugg]

In almost all cases AirBnB rentals are very short-term, typically one to five nights, and additional services are usually provided, such as beverages, maid service, etc. In those cases they are essentially the same as a hotel or motel and should be reported on Schedule C. In relatively few instances AirBnB rentals are for an entire house for a month or more at a time, and no additional services are provided. In those cases it would probably be correct to report them on Schedule E.

Finally, if the total number of days rented is 14 or fewer in a calendar year, the income is not taxable at all, nor can any of the expenses be deducted. (Code §280A(g))

[TaxGuyBill]

The determining factor is if "services" are provided. If services are provided, it goes on Schedule C. If services are not provided, it goes on Schedule E.

The tricky thing can be to determine if "services" are provided or not. Maid service and providing meals are definitely services, but providing heat, cleaning common areas, and collection of trash are not.

Other things could be a "gray area". Does greeting the person and showing them around the house count as services? Maybe, maybe not. Does cleaning the room between short-term rentals count as services? Maybe, maybe not. At any rate, it can often be structured to minimize the possibility that it would be classified as services.

https://www.law.cornell.edu/cfr/text/26/1.1402(a)-4#c

[Kram BergGold]

Two Things

I would say if the years rental activity is 14 days or less, then I would wash it off of Schedule E as rents when 14 days or less are not reportable. If over 14 days then I would say if meals are provided it is Schedule C, otherwise Schedule E.

[New York Enrolled Agent]

The determining factor is if "services" are provided. If services are provided, it goes on Schedule C. If services are not provided, it goes on Schedule E.

TGB - I don't think services are the determining factor.

I believe most (not all) AirBnb activities are businesses not rentals.

Reg. §1.469-1T(e)(3) provides a list of activities which are deemed NOT to be rental activities. The first on the list is when the average period of customer use is seven days or less. I think it's fair to say most AirBnb activities fall under this rule. Not a rental, therefore a business and I believe the activity should be reported on Schedule C.

[TaxGuyBill]

Yes, services are the determining factor for Self Employment Tax.

For purposes of Passive Losses, the number of days is used to determine if it is a rental. The number of days does NOT determine if it is a "rental" for purposes of Self Employment Tax (Schedule C). Section 1402 (Self Employment Tax) and its Regulations do not have this criteria, nor does it refer to §469. The determining factor is "services".

[Rapid Robert]

source of AirBNB statistics?

In almost all cases AirBnB rentals are very short-term, typically one to five nights, and additional services are usually provided, such as beverages, maid service, etc. [...] In relatively few instances AirBnB rentals are for an entire house for a month or more at a time, and no additional services are provided.

Is this information posted at the AirBNB website of some other official source? If not, how do you know these statements are true?


As a general response to the thread, it's important to note that tenant-finding services have been around for a long time, there is nothing about AirBNB that has changed one word of the tax code and regulations. If not familiar with vacation home rental rules, one should study up. As always, it is necessary to interview the client and perform enough due diligence regarding the facts and circumstances of the rental activity, to ensure that the return information does not appear to be incomplete, inaccurate, or inconsistent.

While I have very high regard for NYEA expertise and opinion, there does seem to be a lot of contrary opinions agreeing with TaxGuyBill. Here for example is a quote from a February 2016 article in NATP Tax Pro Monthly.

"First, let’s debunk one popular misconception:
Just because the rental is used for an average period of
fewer than seven days does not automatically mean the
rental activity is subject to self-employment tax and
reported on Schedule C. Although this may be looked
at for other reasons, such as comparing the rental to a
hotel or motel, the time period does not in and of itself
create self-employment tax, because there is a difference
between the regulations under §469, where you find
the seven-day rule, and §1402, where you find the
definition of self-employment income."

[New York Enrolled Agent]

RR - I made no (as in zero comment) about self-employment tax.

My point was and remains if the average customer use is 7 days or less, it is NOT a rental activity.

I fully understand there may or may not be self-employment tax but the original poster made no inquiry about that issue. The original poster only asked about placement on Schedule E or C. TGB first raised the issue in his second post. I'll simply note that the $25,000 "allowance" provided in §469 for active participation does not apply - this would only apply for rental real estate activities.

[TaxGuyBill]

As I mentioned before, it is not a rental activity for purposes of Passive Losses.

It IS still a rental activity for other purposes, such as Self Employment tax.

I again bring up Self Employment tax because putting it on Schedule C would subject it to Self Employment tax. Therefore the proper place to put it is on Schedule E.

[Rapid Robert]

Not a rental, therefore a business and I believe the activity should be reported on Schedule C.

OK, maybe you are allowing for the possibility of being reported on Schedule C but with no SE tax, which is not what most people think of when considering Schedule C.

I also quibble with your conclusion that not being a rental, within some context, automatically implies it must be a business. As we all know, there is no definition of "trade or business" in the law, so it seems to me a leap to draw such a conclusion as you have.

From Form 8582 instructions,

"If an activity meets any of the five exceptions listed above [including 7-day and 30-day rules], it is not a rental activity. You must then determine:
1. Whether your rental of the property is a trade or business activity (see Trade or Business Activities, earlier), and, if so,
2. Whether you materially participated in the activity for the tax year (see Material Participation, later).
If the activity is a trade or business activity in which you did not materially participate, enter the income and losses from the activity on Worksheet 3.
If the activity is a trade or business activity in which you did materially participate, report any income or loss from the activity on the forms or schedules normally used."

Thus we have no instructions at all as to how to report an activity which is not a rental activity (under passive activity rules) yet is also not a trade or business. I'd put it on Schedule E, but perhaps Schedule C with no SE tax applied is also acceptable or better choice?

[Rapid Robert]

Thus we have no instructions at all as to how to report an activity which is not a rental activity (under passive activity rules) yet is also not a trade or business. I'd put it on Schedule E, but perhaps Schedule C with no SE tax applied is also acceptable or better choice?

Strike what I said about Schedule E. In the case of real estate rental activity that falls under the 7-day rule and therefore is not a rental activity, I would report it right on the front of Form 1040, just like an activity of personal property rental for profit that is not a trade or business.

[New York Enrolled Agent]

Strike what I said about Schedule E. In the case of real estate rental activity that falls under the 7-day rule and therefore is not a rental activity, I would report it right on the front of Form 1040, just like an activity of personal property rental for profit that is not a trade or business.

RR - one big problem we have is that Congress introduced §469 in the TRA of 1986. Clearly that was well before there was a twinkle in anyone's eye about AirBnb.

It seems to me that most people serve as hosts for AirBnb to make money. You are 100% correct there is no definition of trade or business so I'm basing my conclusion on the notion that these hosts' primary purpose is income or profit and they do this with regularity and continuity. If this assumption holds, IMO I have a business. If not, then I conclude the host has a hobby so you could put the income on line 21 but now you have to tell the client where the hobby expenses go. The special exception using the combination of lines 21 and 36 is for personal property non-business rentals. I'm personally not willing to make that jump for real property.

I would assume every visitor to a host's house expects a clean apartment/home to enjoy their short stay and would anticipate in the minimum clean sheets and towels and perhaps more.

The IRS has not given much guidance on this but recently added a sharing economy tax center. In one section they talk about the mixed use of a residence. I'm pasting just one sentence so I would urge everyone to read the whole document to make sure this is not out of context.

If you provide substantial services that are primarily for your tenant's convenience, such as regular cleaning, changing linen, or maid service, you report your rental income and expenses on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business.

This is clearly not authority but the regulations basically give no direction on substantial services so this is the best I can offer. Perhaps I mis-interpret this statement but I still think most AirBnb hosts have visions of "big bucks" when the enter into this. Of course they want to write it all off but that's a story for a different day.

[Rapid Robert]

EZ way to deal with "services provided" for short term rental

OK, maybe treating it like a personal property rental is not correct, but I think it would yield a correct bottom line, and will be easier for the IRS to understand than a Schedule C with no SE tax. And as I said, we don't have ANY instructions about what IS the correct way to report it. (Hence, the original question).

I still think there is NOTHING about AirBNB that doesn't already fit into existing tax laws. I know that there have always been short-term rentals of vacation homes in resort areas, I have used them myself in years past, at several different locations. The fact that the tenant was found via AirBNB instead of a more traditional service changes nothing.

What I do know about the "clean sheets" issue, is that whenever we signed up for a week-long stay, part of the deal was that we had to launder the sheets at the end of our stay, clean the dishes, and generally leave the place as clean as we found it. We also had to buy our own food and prepare our own eat-in meals. We had an option of paying a fee to a separate cleaning service if we didn't want to do the work ourselves. Wouldn't this arrangement satisfy the "no services provided" requirement?

This would not cover the true B&B situation, where owner remains in the dwelling and serves meals, entertains, and otherwise interacts with guests. But we don't really know how many of each kind of AirBNB rental there are, and the ratio might vary from city to city. I have one client who has rented out his house via AirBNB (did it through an S-corp, which is another matter), and a family member who has used the service as a tenant, and in both cases, the owner moved out completely during the stay, no interaction.

It still leaves the 7-day rule. For the sake of argument, let's say the short term stay rental we are thinking of is not a trade or business. How would you recommend to report it? Schedule E would again be my answer, if the PPR-style reporting is not good. It's got all the proper line items, including depreciation, and most software can handle a Schedule E activity that is either passive or not. (By which I mean, since it's not a rental for passive rules, it is not automatically considered passive, but it still could be passive, based on facts and circumstances).