What are the top 3 legal tax shelters to reduce Airbnb federal tax income?

Answer by Wray Rives:

My first suggestion is that you should contact a tax professional to help you with your taxes.  No offense, but from the way you phrased parts of the question, my assumption is accounting and taxes is not your primary area of expertise.  Unfortunately Turbo Tax has done a great job of convincing everyone that taxation is generic and anyone can be their own tax expert. Rental real estate is one area of tax law, where I really think you should use a professional.

Just in your short example there are a number of possible variations to how you should be reporting your rental income and minimizing your taxes.  So many variations in fact that I could not give you a completely accurate answer with all possibilities without first having about a 20-30 minute conversation to determine more specifics about your unique situation.

That said I can give you some general ideas to consider.  If you are truly only using the property less than 14 days per year for personal use, then you probably qualify to write off all if not most of the expenses of the apartment against the rental income.  Just be cautious that what you call personal use days may not be the same as what tax law defines as personal use days.

Generally any expense necessary to make the apartment available for rent would be deductible, subject to personal use above.  That means you could deduct the rent, utilities, cleaning fees, Airbnb fees and the cost of furniture and supplies provided for the apartment.

One specific area to be cautious of with Airbnb rentals is the typical lease terms can be short.  The concept of Airbnb rentals was to rent your truly personal residence, you have effectively turned this into a business of renting your apartment and there is a difference in occasionally renting your personal residence compared to operating a business of providing lodging on a short term basis.  It is possible that your Airbnb activity rises to the level of essentially operating a hotel which has a number of other tax consequences including the fact that most cities and states, including Seattle WA, impose a lodging tax and sales on short term rentals. Airbnb's stance on your local tax obligation is pretty much you need to figure it out yourself and they can't help.

So while I can't give you a complete answer to your tax situation, I can pretty much guarantee you that you should not be paying income tax on the full amount of rental revenue you receive from Airbnb as I feel confident some, if not all, of the expense to operate the apartment are tax deductible for you.

What are the top 3 legal tax shelters to reduce Airbnb federal tax income?