STR tax implications and mitigating tax impact

5 Replies

Hi all,

I have been using my basement as an STR house hack for about 2 months, currently I'm only listing on AirBnB. It's done much better than I predicted (due to the summer months probably) and I want to ensure I have all my ducks in a row for next year's taxes so I don't get blindsided.

As a live in STR (where I rent out a portion of my home) would making an LLC help in mitigating tax impact? I've kept a detailed record of start-up expenses for write offs, but will the AirBnB income be taxed at the end of the year based off of my income tax bracket? (Most of my income is W2 income, about 33% above the local median).

Please share your STR tax mitigation stategies, to make this a viable investment strategy. The more details you can share, the better!

@Bryce Bender you’ll need to talk to a professional about this (CPA) since you’re asking for legal advice. 

My OPINION LLC is worthless in your case unless the property is not leveraged. But even then the LLC won't be for tax purposes but for CYA purposes.

You do have to pay State Sales and City/County lodging tax every month or you’re breaking the law. (Mylodgetax.com) 

Find yourself a good CPA that OWNS vacation rentals and understands them. But honestly in your case turbo tax should do the job. 

Buy all of your supplies on amazon so your write offs are all in one place. 

And last but not least.... Read a book called Loopholes of Real Estate. ASAP. 

And hit the vote button ;) 

@Bryce Bender What @Luke Carl said. I am not a CPA and none of this should be construed as tax advice. In my opinion, since it's part of your primary residence, you may be able to write off a percentage of the expenses equivalent to the portion of the house being used as an STR - somewhat like writing off a home office. But definitely something to discuss with a CPA who understands short term rentals.

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@Bryce Bender  Lucas and Julie already gave you great advice (as always) but to follow up further and as they said, I'm not a CPA or tax professional in anyway here, just a somewhat seasoned VR owner at this point.  : )   

What you have to figure out with your tax professional is to answer a variety of questions with regards to the status of Passive Activity , Services provided (substantial/insubstantial) and if Vacation Home rules apply to your situation which will dictate what you get to write off.   These questions will also help you figure out what schedule (C or E) you should abide to which then might actually dictate the need for entity formation as it could dovetail with your tax strategy.  

As Lucas Carl stated, I would definitely go find a CPA that has some previous experience in this area.  Many CPAs are industry specific it turns out (dentists, doctors, etc.) so it's worth asking if they have experience in this particular aspect of tax law. 

Best of luck!

I can't really add much but here are some links for the info you might want to check out for occupancy taxes.

https://tax.utah.gov/sales/transientroom  Covers the state of Utah

It looks like AirBNB collects the occupancy taxes on your behalf

https://www.airbnb.com/help/article/2333/occupancy...

For your taxes, just make sure you keep good records of everything. Seeing as you are living in the home you should check and see how much you can deduct based on usage percentages. IE: You wash how much laundry in support of the rental vs your personal laundry. Goes the same for electric usage and on and on. You will have to check with a CPA to see if there are formulas for it.

https://99deductions.com/d/utilities-tax-deduction#airbnb-host-renter  has some info on that very thing.

Originally posted by @Bryce Bender:

Hi all,

I have been using my basement as an STR house hack for about 2 months, currently I'm only listing on AirBnB. It's done much better than I predicted (due to the summer months probably) and I want to ensure I have all my ducks in a row for next year's taxes so I don't get blindsided.

As a live in STR (where I rent out a portion of my home) would making an LLC help in mitigating tax impact? I've kept a detailed record of start-up expenses for write offs, but will the AirBnB income be taxed at the end of the year based off of my income tax bracket? (Most of my income is W2 income, about 33% above the local median).

Please share your STR tax mitigation stategies, to make this a viable investment strategy. The more details you can share, the better!

The internet is a great place to start for tax advice but when you get serious I'd highly recommend you not only consult a CPA, but one who specifically specializes in REI such as @Daniel Hyman