An article in the Wall Street Journal stated that Airbnb hosts should be aware that mortgage companies often will charge higher rates or reject refinance applications totally if the find that the aplicant is showing income from Airbnb or similar on their tax returns. I can, to a point, understand them not counting that as income , but to penalize them for it, I find is incredible.
Unfortunately I am considering a refi because I have an ARM which is tied into Libor which looks like it is increasing at an alarming rate. Even though I have a credit rating of 850+ and have 80% equity, I am self employed so therefore do not need any further strikes against me.
As I have declared approx $3000 annualy income from Airbnb for the last two years, I am probably screwed on refinancing this year, but am undecided what to do for the future… 2.
My alternatives are, 1. Don’t declare it and hope Airbnb don’t report it. 2. Declare it on my schedule C as in the past. 3 Claim it on schedule E as passive income. 4. Opt out of Airbnb.
I am leaning towards option 4, as with the cleaning and hassles of renting out a room on Airbnb and having to pay 15% self employment tax along with the potential of having to pay out thousands more in mortgage interest due to the restrictions on refinancing.
Am I missing something here and is there anyone elese in a similar situation who has come up with a solution to this dilemma?
We have had NO issues refining with ABB showing up on schedule E. I would highly recommend NOT withholding earnings from the IRS, that seems like the worst option. Most banks will not count ABB as income, but they won’t penalize, in our experience. We have refi’d two of our ABB properties with no issues, last one closed 2 weeks ago.
My schedule E doesn’t show the source of the rental income; it simply shows rental income.
In answer to your question, YES, they can reject you for a refi, charge a higher rate and even change the terms of your original residential mortgage rate based on the disclosure of Airbnb income showing!!!
For this reason, I’m very glad I never filed my ABB business under schedule C!
How could they change the terms of my original mortgage because I changed for long term to short term tenants? How can I investigate this more? Has this happened to you or someone you know?
We know of someone, yes, who posted on this forum… when he applied for a refi, they saw all his taxes and nailed him. You changed from a residential use to a “commercial” use? You violated the terms at which you agreed to when you took out the mortgage (in their view)… so not only would they not refi, they changed the rate on the guy’s original mortgage!
Schedule E whenever possible!!!
My mortgage would not be called. This is not universal. You would need to read your mortgage documents. Mine clearly state that we had to use this as our primary residence for one year and no restrictions as to its use after that, as long as we don’t try to use if for something disallowed by zoning.
I suspect that the mortgage company believed that the original poster had moved and was using the house as a rental property. Mortgage lenders give better interest rates for primary residences. This is because people have greater incentive to make the mortgage payments on their primary residence their top financial priority than they do for investment property. Many mortgages will be called or have the interest rate raised if the property ceases to be the borrower’s primary residence.
But as I mention above, my mortgage would allow me to rent out my whole house either as a long or short term rental. Check those mortgage documents carefully.
I am glad to find this forum and to learn that this is a real concern. I had previously researched the issue through tax help related to Turbotax and other tax related sites but was still confused, hence my recent post. From reading IRS publications I had concluded that this kind of income should be filed under schedule C because the average rental period was less than 7 days per guest, and services were provided to those guests, ie., clean linen, breakfast etc., that were similar to an hotel and as such fell under the category of a “business”. Schedule E filings applied to rentals of more than 30 days. I have filed under C for one year and E for another due to confusion. It seem that this is a gray area which might be more specifically addressed by the IRS in the future.
Airbnb sent out a notice a while back to the effect that they would no longer be issuing 1099’s for earnings of under $20000 whereas they had done so earlier.
Until recently I had no idea that being an Airbnb host could affect on’s ability to refinance, but after reading some of your responses, it seems that is true. Surely this would be regardless of whether Sched C or E is used, as either is evidence that part of the mortgaged property has been used for income purposes.
One would think that Airbnb themselves would offer some assistance in helping clarifying this situation for the benefit f their hosts who, like me, are still confused over how to enter this income on their taxes. I will also bet that there are a lot of hosts out there who are completely unaware of the refinancing pitfalls.