Airbnb revolutionized how homeowners can use the extra space in their homes or during time spent away. It seemed like an overnight phenomenon—a new source of income arose without mortgage payers having to make any additions or even improvements to their homes. The hosting service also gave travelers a variety of new lodging options and unique experiences while on vacation. Hotel shortages and expensive rooms had become common in many cities worldwide and Airbnb very successfully capitalized on the new market opportunity. However, income means taxes, and untangling this has not been so simple. If you rent property in the San Francisco Bay Area using the app, you may be wondering if there are any Airbnb tax deductions available to you, and how you can get them.
Municipal regulations and Airbnb policy
The transition for municipal governments was not smooth. City councils assessed how they could support the local economy and still regulate the new source of revenue. Safety equipment, such as fire extinguishers, are Airbnb tax deductions but not all the regulations that applied to traditional hotel stays would be applicable. When Airbnb discovered that some hosts were illegally discriminating against interested guests, the company hired former US Attorney General Eric Holder to implement a strict non-discrimination standard. Hosts who violated the guest policy could be banned from using the platform.
Programs to regulate Airbnb rentals in the city of San Francisco coalesced over time. The transient occupancy tax (TOT) rate of 14% has been in place since 1978. Other required taxes are the Tourism Improvement District (TID) assessment of up to 1.5%. There is another tax if the host’s property is located within a business district. Hotel Nikko, in area code 94102, lists the 14% TOT plus a 2.25% business district fee.
Business registration requirements and fees
All hosts must go to the San Francisco Treasurer and Tax Collector and register to obtain a Business Account Number or BAN. Next, hosts must register with the Office of Short-Term Rentals to obtain a Short-Term Residential Rental Certificate. The cost is $250 for a two-year term. As a host, you must collect tax remittances but since fees are required to do business, they are considered Airbnb tax deductions in San Francisco.
Insurance coverage and business income
You don’t have to buy insurance if you remain active on the Airbnb platform because a $1 million policy automatically covers all hosts. The City of San Francisco only requires hosts to maintain $500,000 of coverage. If you choose to carry a separate policy, this should be tax-deductible. Once annual income from your Airbnb business reaches a specified threshold, then you may be required to submit Form 571-STR with the City of San Francisco Assessor’s Office to pay a business tax on your property. Further, your business certification must be renewed annually with the Treasurer and Tax Collector.
Major Airbnb tax deductions in San Francisco
As you can see, the short-term rental business in the City of San Francisco isn’t an easy undertaking. Months of planning should probably go into deciding to rent all or a portion of your home and property. You may spend considerable time figuring out an efficient way to track all the taxes, licensing, documentation, and municipal fees. Fortunately, cleaning fees, guest fees and taxes are calculated automatically. Double-check the required taxes and rates for your address with the Treasurer & Tax Collector’s office.
The second major Airbnb tax deductions area to review are:
- Mortgage insurance
- Cleaning fees
- Rental commissions
- Property or indemnity insurance
The third area of review is utilities, and surprisingly, furniture. All furniture, consumables, amenities, and bedding you purchase for guest comfort during their stays are tax-deductible. San Francisco does place a 90-day annual limitation on the amount of time you can rent out your property. Be aware so that you do not get fined. Also, be careful to calculate the portion of the second deductions area used for personal vs. business to accurately report on federal taxes for short-term rentals.
Properly accounting for tax deductions
Navigating the expensing and tax deductions landscape of short-term rental property requires careful accounting from a skilled CPA. There are many different component taxes, fees, and expenses with just running the Airbnb alone. Once you begin to calculate the second and third areas of deductions and percentages of use for federal taxes, the exact figures can become unclear. It can be dizzying, so seeking out a reputable wealth management firm will be key.
SD Mayer is located in the San Francisco Financial District. Our full-services accounting and tax advisory office can complete all your filing requirements for you on your Airbnb rental property, Contact us today to get started with an initial consultation.