Taxes on AirBNB income for renter
I have been living by myself in a large multi-bedroom apartment in a 3-apartment house owned by my landlord, who lives downstairs. We have been renting out the apartment I live in from time to time on AirBNB. The income goes into my PayPal account. At the end of the month, I
pay rent,
pay a portion of the AirBNB income to my landlord to cover his mortgage on the apartment,
pay him one half of the leftover income.
At the end of the year, how do I pay taxes on the AirBNB income, and how do I avoid paying taxes on ALL of the income I received through AirBNB?
I see a few different options.
A. I am self-employed. I could report the total income from AirBNB as part of being self-employed, and list the amount I paid to my landlord as an expense.
B. I could only report the part of the income that I kept for myself. Or, I could take taxes out of the income before I pay my landlord.
C. instead of reporting the income as self-employment income, I could report it, in full or in part, as some other kind of income(?).
D. I could not report the income at all?
I'm just not clear what my best (legal) option is.
I am in Massachusetts, and we will end up renting the apartment for 30+ nights during the current tax year.
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Options A and D are obviously irrelevant being completely illegal. Doing so may result in criminal tax fraud/evasion charges.
Options B and C are essentially the same.
You report all of the income as your rental income on your Schedule E. You then deduct qualified expenses. The portion you pay your landlord is essentially rent, and you can deduct it (it will be income to the landlord reported on the landlord's schedule E). However, you may need to issue 1099 to the landlord if you pay him over 0/year.
Keep in mind that there are special rules for deduction on rental property which is only partially used for rental. For example, you cannot have expenses exceeding the actual rental income (i.e.: you cannot generate a tax loss from a partial rental).
You will need to prorate your expenses (including rent paid to the landlord) based on the rental/personal use ratio.
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