IRS to Crack Down on Airbnb Rental Tax Deductions

Airbnb has become a great way for property owners to make some extra money while providing travelers with unique accommodation options. As this sector of the hospitality industry has grown, new tax regulations have been implemented to account for the additional income generated. One example is Section 199A of the Tax Cuts and Jobs Act (TCJA), which allows owners to gain tax savings through a qualified business income (QBI) deduction. Unfortunately for many individuals hoping to utilize the deduction, qualifying will take a significant amount of work.

Prior to the TCJA, Airbnb owners preferred not to be classified as a formal business to avoid a self-employment tax of 15.3 percent. The QBI deduction allows owners to claim half of that self-employment tax as a deduction and save up to 20 percent on their business income taxes. Many owners have since decided to change their status but have not kept the necessary records to prove it.

The requirements specify that owners must spend at least 250 hours each year performing rental-related activities. Most individuals do not come close to reaching this threshold and will have to spend additional hours working on their Airbnb rentals. Owners will need to create personal time cards to track their hours and keep detailed records of services performed for property maintenance. Additionally, they will need to file a Form 1099 for payments to service vendors over $600 to comply with other business status protocols.

Airbnb tax regulations may have been lenient in the past, but with many owners expected to take the deduction, the IRS is likely to verify the accuracy of business-related income. There are currently no tax court cases related to the QBI deduction to serve as a precedent, so the penalty for violators is unknown. Having an accurate record-keeping system is essential for business owners in any industry. It is better to be safe than sorry by consulting an expert tax advisor to learn more about reporting regulations.

Talley’s experienced team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance and pass on to the next generation the assets and wealth that you’ve worked hard to build. We welcome the opportunity to discuss the current opportunities available to you. For more information, contact us today.