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Airbnb

G eneral guidance on the taxation of rental income Airbnb | General guidance on the taxation of rental income

January 2017 v1

1

Disclaimer

This booklet was prepared by Ernst & Young LLP (EY) at the request of Airbnb. This booklet is intended solely for information purposes and no Airbnb Host or other third party may rely upon it as tax or legal advice or use it for any other purpose. As such, EY and Airbnb assume no responsibility whatsoever to Airbnb Hosts or other third parties as a result of the use of information contained herein. This booklet was prepared by EY, and does not necessarily reflect the views of Airbnb. This booklet contains information in a summary format. It does not provide tax advice to any taxpayer because it does not take into account any specific taxpayer's facts and circumstances. Readers are encouraged to consult with professional advisors for advice concerning specific matters before making any decision or taking a position on any tax return, and EY and Airbnb disclaim any responsibility for positions taken by taxpayers in their individual cases or for any misunderstanding on the part of readers. While EY has used its best efforts in preparing this booklet, it makes no representations or warranties with respect to the accuracy or completeness of the contents of this booklet and specifically disclaims any implied warranties. Neither Airbnb nor EY shall be liable for any loss of profit or any other damages, including but not limited to direct, indirect, special, incidental, consequential, or other damages in connection with the information contained in this booklet.

Please refer to the

Airbnb Responsible Hosting Page at

https://www.airbnb.com/help/responsible-hosting for additional general information about hosting in the United States. Airbnb | General guidance on the taxation of rental income

January 2017 v1

Disclaimer

This booklet is intended solely for information purposes and no Airbnb Host or other third party may rely upon it as tax or l

egal advice or use it for any

other purpose. As such, EY and Airbnb assume no responsibility whatsoever to Airbnb Hosts or other third parties as a result of the use of information

contained herein. This booklet was prepared by EY, and does not necessarily reflect the views of Airbnb. Please refer to the disclaimer on page 1 for

more information. 2

Table of contents

Table of contents

1 Persons subject to US income tax ........................................................................

. 3

2 Rental income ........................................................................

............................. 3

3 What tax information will Airbnb provide ............................................................... 5

4 Expenses that can be deducted ........................................................................

.... 5

5 Proration of rental expenses ........................................................................

........ 7

6 Repairs & maintenance v. improvements - deduct or capitalize ............................... 12

7 Depreciation ........................................................................

............................... 13

8 Limit on rental losses ........................................................................

.................. 14

9 How to report rental income and expenses ............................................................ 16

10 How to report deductible personal expenses .......................................................... 17

11 Reporting payments to independent contractors ................................................... 17

12 How is (net) rental income taxed (Federal) ............................................................ 17

13 How is (net) rental income taxed (States) .............................................................. 17

14 Quarterly estimated tax payments ........................................................................

17

15 Sale of home used as rental property .................................................................... 17

16 Documents to be retained ........................................................................

............ 18

17 Useful References ........................................................................

....................... 20

Exhibit A Schedule E

(Form 1040) ........................................................................ ......... 21

Exhibit B Schedule A

(Form 1040) ........................................................................ ......... 22

Exhibit C 2016 Tax rates for individual taxpayers ........................................................... 23

E

x hibit D 2015 Tax rates for individual taxpayers ........................................................... 25

Airbnb | General guidance on the taxation of rental income

January 2017 v1

Disclaimer

This booklet is intended solely for information purposes and no Airbnb Host or other third party may rely upon it as tax or l

egal advice or use it for any other purpose. As such, EY and

Airbnb assume no responsibility whatsoever to Airbnb Hosts or other third parties as a result of the use of information

contained herein. This booklet was prepared by EY, and does not necessarily reflect the views of Airbnb. Please refer to the disclaimer on page 1 for

more information. 3

1. Persons subject to US income tax

I am an Airbnb host. Am I subject to income tax in the U.S.?

You are subject to U

.S. income tax if you have U.S.-source income. Generally, income derived from U.S.

assets, such as rental properties located in the U.S., is U.S. -source income and subject to U.S. income

tax.

Domestic rental income (i.e. rental income from a

property located inside the U.S.) is taxable in the U.S. regardless of where the person in receipt of that income resides. For example, an individual living outside the U.S. who is in receipt of rental income from a U.S. property is still subject to tax in the United

States.

Foreign rental in

come (i.e. rental income from a property located outside the U.S.) is taxable in the U.S. if the host is a U.S. citizen or permanent resident.

An individual in receipt of foreign rental income

should engage a tax advisor to ensure that rental income is correctly reported and any tax due is paid timely.

Types of taxpayers: cash-basis vs. accrual basis

If you are subject to U.S. income tax, you must report your rental income as a cash-basis or accrual-

basis taxpayer.

If you are a cash-basis taxpayer, you report rental income on your return for the year you actually or

constructively receive it and you deduct all expenses in the year you actually pay them. You are a cash-

basis taxpayer if you report income in the year you receive it, regardless of when it is earned. Most

individuals are cash-basis taxpayers. You constructively receive income when it is made available to you, for example, by being credited to your bank account.

If you are an accrual

-basis taxpayer, you generally report income when you earn it instead of when you receive it and you deduct expense s when you incur them instead of when you pay them. Accrual-basis taxpayers should engage a tax advisor to ensure that rental income and expenses are correctly reported.

2. Rental income

If you are subject to U.S. income taxes, you must include in your gross income all amounts you receive

as rent. 'Rent' is the gross amount of payment received (before any expenses are deducted) for the use

or occupation of property. It can also include payments received for any goods or services that are provided, e.g. meals, cleaning, etc.

Taxable rental income is the gross amount of rent received less any allowable expenses. This can also

be referred to as 'net' rental income. If the allowable expenses are greater than the gross amount of

Airbnb | General guidance on the taxation of rental income

January 2017 v1

Disclaimer

This booklet is intended solely for information purposes and no Airbnb Host or other third party may rely upon it as tax or l

egal advice or use it for any other purpose. As such, EY and

Airbnb assume no responsibility whatsoever to Airbnb Hosts or other third parties as a result of the use of information

contained herein. This booklet was prepared by EY, and does not necessarily reflect the views of Airbnb. Please refer to the disclaimer on page 1 for

more information. 4

rent received, a rental loss will arise. Taxable rental income/(loss) must be reported and calculated on

Schedule C or E of Form 1040 (see section 9 "How to report rental income and expenses"). In addition to the amounts you receive as normal rent payments, you may also receive other amounts that should be carefully considered in determining the amount of gross rental income to report.

Examples of such amounts include:

Advance rent is any rent you receive before the period that it covers. Include advance rent in your rental income in the year you receive it regardless of the period covered or if you are a cash or accrual basis taxpayer . For example, if you receive rent in December 2016 that is intended for January 2017, you must include it in rental income in 2016. Security deposits are not included in rental income if you have restricted use of the money. For example, if you have to return security deposit to guests at the end of their stay, it is not included in rental income. If you keep part or all of the security deposit because a Guest damaged the property and you must make repairs, include the amount you keep in that year in rental income if you deduct the cost of repairs as expenses. To the extent the security deposit reimburses those expenses, do not include the amount in rental income if you do not deduct the cost of repairs as expenses. If a Guest pays any of your expenses, for example, utilities expenses, the payments are rental income. Since you must include this amount in income, you can deduct the expenses if they are deductible rental expenses (defined in section 4 "Expense that can be deducted"). If a Guest cancels a reservation and you receive a portion of the accommodation fee, the amount you receive is rent. Include the payment in your income in the year you receive it. Any rent refunded to a Guest due to cancellation is not included as net rental income. Tax documents, such as 1099-K, are reported on a gross basis. Any gross rent that is refunded should be included as gross rental income and also taken as a deduction. Example: You receive a payout of $5,000 for a Guest's 10-day stay. The Guest only stays for 8 days and you offer a $1,000 refund via Airbnb. A $1,000 "adjustment" is placed on your account and automatically deducted from your next scheduled payout of $5,000 for another Guest's stay. Your total payout is $9,000 ($5,000 - $1,000 + $5,000). Your gross rental income is $10,000 and reported as such on your 1099-K or Earnings Summary. On your tax return, you report $10,000 as gross rent and $1,000 as a deduction to arrive to net rental income of $9,000.

Exemptions:

If you use a dwelling unit as a home and you rent it less than 15 days during the year, its primary function is not considered to be rental . You are not required to report the rental income and rental expenses from this activity on Schedule C or E (Form 1040). The expenses, including qualified

mortgage interest, property taxes, and any qualified casualty loss will be reported as normally allowed

on Schedule A (Form 1040). See the Instructions for Schedule A (Form 1040) for more information on deducting these expenses. Airbnb | General guidance on the taxation of rental income

January 2017 v1

Disclaimer

This booklet is intended solely for information purposes and no Airbnb Host or other third party may rely upon it as tax or l

egal advice or use it for any other purpose. As such, EY and

Airbnb assume no responsibility whatsoever to Airbnb Hosts or other third parties as a result of the use of information

contained herein. This booklet was prepared by EY, and does not necessarily reflect the views of Airbnb. Please refer to the disclaimer on page 1 for

more information. 5 A dwelling unit includes a house, apartment, condominium, mobile home, boat, vacation home, or

similar property. It also includes all structures or other property belonging to the dwelling unit. A

dwelling unit has basic living accommodations, such as sleeping space, a toilet, and cooking facilities. A

dwelling unit does not include property (or part of the property) used solely as a hotel, motel, inn, or

similar establishment. Property is used solely as a hotel, motel, inn, or similar establishment if it is

regularly available for occupancy by paying customers and is not used by an owner as a home during the year.

3. What tax information will Airbnb provide

An Airbnb host can refer to this Airbnb Help Center article at

airbnb?topic=248 as a guide to determining what tax forms Airbnb may provide to assist with reporting

gross rental income for any calendar year.

4. Expenses that can be deducted

As outlined above, taxable rental income is the gross amount of rent received less any allowable expenses. In general, a deductible or allowable expense is one that is ordinary and necessary, has actually been paid (for a cash basis taxpayer) and is not regarded as capital in nature. Examples of deductible expenses include

Ź Advertising

Ź Cleaning and maintenance services, including laundry services and cleaning supplies purchased Ź Utilities, i.e. gas, electricity, TV, Internet, bin collection, etc. Ź Property insurance, in addition to building and content cover, a deduction can also be claimed for private mortgage insurance (PMI) premiums on rental property. However, if you prepay PMI premiums for more than one year in advance, for each year of coverage you can deduct only part of the PMI payment that will apply to that year Ź Property taxes related to the rental property Ź Interest on a loan/mortgage taken out to buy or improve the rental property Ź Fees paid to collect rent, e.g. service fees charged by Airbnb Ź Ordinary and necessary travel and transportation

Ź Repairs, i.e. fixing broken windows, doors, furniture and machines, etc. (See section 6 “Repairs

& maintenance vs. improvements - deduct or capitalize") Ź Depreciation on amounts paid to acquire the property and to make subsequent improvements (See section 6 “Repairs & maintenance vs. improvements - deduct or capitalize" & section 7

“Depreciation")

Airbnb | General guidance on the taxation of rental income

January 2017 v1

Disclaimer

This booklet is intended solely for information purposes and no Airbnb Host or other third party may rely upon it as tax or l

egal advice or use it for any other purpose. As such, EY and

Airbnb assume no responsibility whatsoever to Airbnb Hosts or other third parties as a result of the use of information

contained herein. This booklet was prepared by EY, and does not necessarily reflect the views of Airbnb. Please refer to the disclaimer on page 1 for

more information. 6 Ź Amortization of points paid to acquire a mortgage on the rental property Ź The cost of managing the property, i.e. legal fees and accountancy fees incurred by the host in connection with renting the property. Homeowners' association (HOA) fees are also deductible Ź Payments made to Guest in the form of refunds (in the event of a reservation cancellation or alteration, or through Airbnb's Resolution Center). Ź Registration fees for relevant conferences or education on property management (i.e. Airbnb Open) Ź Rental payments, e.g. rent paid to landlords by tenant hosts

This list is not exhaustive.

Please refer to IRS Publication 527 "Residential Rental Property" for a more detailed discussion on deductible rental expenses.

Example of deductible travel expenses: You are a US host with a listing in Florida. If you take a 1-week

trip to Florida and spend 1 day inspecting your rental property, no non-local transportation expenses

are deductible. If, on the other hand, 6 of the 7 days are used to repair and attend to the property, all

non -local transportation expenses are deductible. In both cases, local transportation expenses incurred

traveling to and from the property are deductible. However, if a stretch limousine is rented for the local

travel, more than likely the IRS would not consider the expense an "ordinary" expense. Any deduction allowed would be limited to the amount that would be considered "ordinary," such as the cost of a rental car or cab fare. Airbnb | General guidance on the taxation of rental income

January 2017 v1

Disclaimer

This booklet is intended solely for information purposes and no Airbnb Host or other third party may rely upon it as tax or l

egal advice or use it for any other purpose. As such, EY and

Airbnb assume no responsibility whatsoever to Airbnb Hosts or other third parties as a result of the use of information

contained herein. This booklet was prepared by EY, and does not necessarily reflect the views of Airbnb. Please refer to the disclaimer on page 1 for

more information. 7

5. Proration of rental expenses

Generally, only allowable expenses incurred during the period the property is used or held out for

rental purposes can be deducted against rental income. If you use or hold out the property for rental

purposes for the entire year, all your allowable rental expenses are deductible. For Hosts, however, there may be scenarios where only a portion of the house or apartment is rented and/or the house or apartment is rented for only a portion of the year. Proration of allowable rental expenses becomes

necessary in these scenarios. The following decision tree helps you determine when and how to prorate

your rental expenses in various scenarios. A more detailed discussion related to proration of rental expenses follows.

NOT a dwelling unit

(Unit is exclusively used for rental)

Skip to question (E)

NOT considered a

home

Skip to question (D)

Considered a home

Do not report rental income or

expenses on your return (but you may be able to deduct certain expenses elsewhere on your return, for example real estate taxes)

(B) Is the unit used for personal purposes for more than the greater of 14 days or 10% of the total days the unit is rented to others at a fair rental price?

See definition of "fair rental price" in section 5(B) "Personal use of dwelling unit (including vacation home)"

(A) Is the unit listed a "dwelling unit"? See full definition in section 2 "Rental income".

A dwelling unit

(Used for both personal and rental) (E) Are you renting a spare room/portion of house/apartment or your entire house/apartment?

Report rental income and

allowable expenses on your return

Go to question (D)

SPARE ROOM/PORTION OF HOUSE

OR APARTMENT (EXCLUSIVELY

FOR RENTAL)

- pro-rate allowable rental expenses by (a) the number of rooms in the unit or (b) the square footage of the unit. See section 5(

A) for full

discussion

ENTIRE HOUSE OR

APARTMENT

(EXCLUSIVE LY

FOR RENTAL)

report all your allowable rental expenses

ENTIRE HOUSE OR

APARTMENT - pro-rate

allowable rental expenses by total number of days actually rented at a fair rental price/total number of days the dwelling unit is used . See section 5(B) for full discussion

SPARE ROOM/PORTION OF HOUSE OR

APARTMENT - pro-rate allowable rental

expenses by (a) the number of rooms in the unit or (b) the square footage of the unit. See section 5(A) for full discussion

AND by total number of days actually

rented at a fair rental price/total number of days the dwelling unit is used. See section 5(B) for full discussion Yes Yes No No No Yes (D) Are you renting a spare room/portion of house/apartment or your entire house/apartment? (C) Is the unit rented for 15 days or more? Airbnb | General guidance on the taxation of rental income

January 2017 v1

Disclaimer

This booklet is intended solely for information purposes and no Airbnb Host or other third party may rely upon it as tax or l

egal advice or use it for any other purpose. As such, EY and

Airbnb assume no responsibility whatsoever to Airbnb Hosts or other third parties as a result of the use of information

contained herein. This booklet was prepared by EY, and does not necessarily reflect the views of Airbnb. Please refer to the disclaimer on page 1 for

more information. 8

I. Renting part of the property

If you rent part of your property, you must divide certain expenses between the part of the property used for rental purposes and the part of the property used for personal purposes, as though you actually had two separate pieces of property. You can deduct the expenses related to the part of the property used for rental purposes. You can also deduct as rental expenses a portion of other expenses that normally are nondeductible personal expenses, such as utilities. The two most common methods for dividing an expense are based on (1) the number of rooms in your home, and (2) the square footage of your home You do not have to pro-rate any expenses that are exclusively related to the rental part of your property. For example, if you paint a room that you rent, the entire cost is a rental expense. Even though you cannot deduct the portion of allowable expenses for personal purposes against rental income, certain personal expenses, such as home mortgage interest and real estate taxes, can be deducted on Schedule A if you itemize your deduction (see section 10 "How to report deductible personal expenses"). Example: You list your spare room in your house. The spare room is 200 square feet and the rest of the house is 800 square feet. You incur the following expenses:

Repainting the spare room - $500

Replacing broken window in the spare room - $500

Property tax and mortgage interest - $5,000

Internet, electricity and water - $1,000

Expenses for painting the spare room and replacing broken window in the spare room are exclusively related to the rental part of your house and hence these expenses are fully deductible rental expenses. Expenses for property tax, mortgage interest, internet, electricity and water are not exclusively for the rental part of your house, but for the entire house. You have to pro-rate these expenses based on a reasonable method. If you pro-rate your expenses based on the square footage of the house, the fraction of expenses for rental purposes is 20% (200/1,000 sq. ft.) The amount of deductible rental expense is $1,200 ($6,000 * 20%) . Property tax and mortgage interest of $4,000 [$5,000 * (1 -20%)] can be deducted on Schedule A if you itemize your deduction. Internet, electricity and water expenses of $800 [$1,000 * (1-20%)] are considered personal expenses and not deductible. II. Personal use of dwelling unit (including vacation home) If you have any personal use of a dwelling unit (including a vacation home) that you rent out, you must divide your expenses between rental use and personal use. In general, your rental expenses will be no more than your total expenses multiplied by the following fraction: total number of days actually rented at a fair rental price total number of days the dwelling unit is used Airbnb | General guidance on the taxation of rental income

January 2017 v1

Disclaimer

This booklet is intended solely for information purposes and no Airbnb Host or other third party may rely upon it as tax or l

egal advice or use it for any other purpose. As such, EY and

Airbnb assume no responsibility whatsoever to Airbnb Hosts or other third parties as a result of the use of information

contained herein. This booklet was prepared by EY, and does not necessarily reflect the views of Airbnb. Please refer to the disclaimer on page 1 for

more information. 9 You must also determine if the dwelling unit is considered a home. The amount of rental expenses that you can deduct may be limited if the dwelling unit is considered a home. Whether a dwelling unit is considered a home depends on how many days during the year are considered to be days of personal use. If you used the dwelling unit as a home and you rented it for less than 15 days during the year , any income generated is excluded from rental income and any rental expenses are not deductible. If you use a dwelling unit for both rental and personal purposes, divide your expenses between the rental use and the personal use based on the number of days used for each purpose.

When dividing your expenses, follow these rules.

Ź Any day that the unit is rented at a fair rental price is a day of rental use even if you used the unit for personal purposes that day. This rule does not apply when determining whether you

used the unit as a home. Ź Any day that the unit is available for rent but not actually rented is not a day of rental use. Example: Your beach cottage was available for rent from June 1 through August 31 (92 days). During that time, except for the first week in August (7 days) when you were unable to find a renter, you rented the cottage at a fair rental price. The person who rented the cottage for July allowed you to use it over the weekend (2 days) without any reduction in or refund of rent. Your family also used the cottage during the last 2 weeks of May (14 days). The cottage was not used at all before May 17 or after August 31.quotesdbs_dbs17.pdfusesText_23