Tax and Accounting Considerations for P2P Short-Term Rental Hosts

by Funimilayo Oladipo

Photo from Pixabay

The rise of the sharing economy has revolutionized the way we travel and experience new destinations. Peer-to-peer platforms like Airbnb and Vrbo have emerged as popular choices for short-term rentals that offer unique opportunities for individuals to become hosts and generate income from their properties.

However, along with the potential financial benefits come essential tax and accounting considerations that hosts need to be aware of to ensure compliance and optimize their experience. Income taxes are levied by the government as a percentage of your overall income. As a short-term rental host, you pay them out of your pocket and they’re due once a year.

The recent tax law on P2P platforms in the USA holds that any company receiving at least $600 annually for goods and services using the P2P platform will receive a 1099-K form for the previous year and is expected to report that income to the Internal Revenue Service (IRS).

How The Tax Law Has Modified Hosting Experience

If you offer short-term property rentals through popular online platforms like Airbnb and Vrbo, it’s crucial to understand the impact of tax regulations on your situation. Fortunately, the Tax Cuts and Jobs Act (TCJA) has introduced mostly favorable changes for hosts involved in short-term rentals.

Here are some key modifications brought about by the law:

  • You are now eligible to deduct up to 20% of your net rental income from your taxable income.
  • You can now take advantage of bonus depreciation for your rental property.
  • You can utilize the provision of the tax code, Section 179, to deduct up to $1 million of personal property purchased for rental units for property used over 50% of the time for rentals.
  • You can now employ a 1031 exchange for your rental property.

In certain jurisdictions, short-term rental platforms like Airbnb and Vrbo handle lodging taxes on behalf of hosts. They automatically include any applicable lodging taxes in the guest’s bill, collect the tax amount, and remit it to the relevant tax authority.

Although Airbnb and Vrbo collect taxes for hosts in numerous jurisdictions throughout the United States, it’s important to note that tax laws differ from state to state and locality to locality.