What is the best way to deduct expenses for AirBnB's

Question

Hey short term rental owners,

I'm wondering what you would suggest in order to be able to deduct expenses of running your short-term rental business, i.e. furnishing the rental, management fee, etc. Is it easiest to have an LLC for your business in order file taxes through and deduct expenses or is there some way to just do this through my personal taxes?

Any advice on this would be much appreciated.

Thanks!

Michael Plaks · Answer

@Kelvin Scott

Business expenses are deductible no matter how you run them, as long as they are recorded/traced. For recording/tracing purposes, it's cleaner if you have a separate bank account for your rental and channel all your income and expenses through it. The trick is to not mix it with your personal money.

This was a simplistic advice, as the details can get more tedious. For example, your mixed personal/business expenses, such as everything related to your car and your cell phone, should be paid from your personal money but still be tracked.

An LLC changes nothing for taxes, but it might provide some legal liability protection. This is a very controversial topic. You can search this forum for "LLC asset protection" and find dozens of threads debating the legal benefits of LLC, or lack thereof.

Michael Plaks · Answer

Scan this forum for "STRs" and see who answers these questions. It will include the two of us who responded to your post, as well as another 20 of our colleagues.

Brad Scott · Answer

@Michael Plaks Thanks for the input, this is helpful to consider. Thanks for taking the time to respond.

Kathy Henley · Answer

@Kelvin Scott Annual income and expenses of an investment property go on Schedule E of the 1040 tax return. Take a look at the categories. If one needs more categories, there is a spot for 'Other expenses'. This is where I put tenant supplies, for toilet paper and stuff. Furniture is also a business expense. This might be listed in the operating expenses (overhead) of the business, with the computer and office supplies. Ask your CPA for help in setting up the categories at the start, as it is important to be consistent year to year. Furniture depreciates, which is a business expense and, here in my city, we pay property tax on the value of business furniture. That is another tax form.

Bonnie Griffin Kaake · Answer

@Kelvin Scott Short-term rentals are treated like hotels and depreciated over 39 years. You can expense almost everything you do on the property going forward. You must have material participation in the "business" to claim it as an active investment. I highly recommend you explore the tax advantages of cost segregation to help you minimize your taxes and maximize your cash flow. It also makes your accounting and depreciation decision easier going forward.

There are many good real estate savvy CPAs, some are so busy they are not taking new clients and others may be taking new clients but may not be in your same state. Most CPA's work over the Internet nowadays anyway.

Brad Scott · Answer

@Natalie Kolodij Thanks for taking the time to respond. That's very interesting and definitely good to know ahead of time. Do you have any recommendations for a tax pro on BP that works with short-term rentals?

What is the best way to deduct expenses for AirBnB's

What is the best way to deduct expenses for AirBnB's

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