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Airbnb Tax Guide - year-round hosts use Schedule E or Schedule C?

#1

Airbnb’s 2015 Tax Guide and H&R Block’s tax guide for hosts both instruct hosts to report income on Schedule E so long as they are not providing “substantial services” such as housecleaning during stays and meals and are not in the “business of selling real estate.” HOWEVER, according to the IRS, if a taxpayer has a room/home used as a rental YEAR-ROUND and the average stay is less than 7 days, they are considered to be running a business and therefore should use Schedule C (which is subject to self-employment tax that would otherwise be avoided by using Schedule E) even if they aren’t providing substantial services. So for hosts that do dedicate a room year-round to guests, shouldn’t they be instructed to use Schedule C? This distinction is not made in the tax guide. or am I missing something?


Many condos, vacation cottages, time-shares, hotels, motels, and bed and
breakfasts have an average rental period of seven days or less. As a result,
these activities are not defined as rentals[12], but instead are treated as
businesses. Activities with an average rental period of 7 days or less are defined as
businesses, not rentals.

http://www.nolo.com/legal-encyclopedia/tax-issues-when-renting-your-home-airbnb-vrbo.html
In some cases, renting out all or part of your house or apartment can be classified for tax purposes as the equivalent of running a bed or breakfast or hotel. This will be the case if you dedicate a room or rooms in your home solely for the use of paying customers and never personally live in such rooms. You’ll also be classified as running a hotel business if you provide substantial services that are primarily for your guest’s convenience, such as regular cleaning, changing linen, or maid service. Ordinarily, you’ll report your rental income and expenses on Schedule C (Form 1040), Profit or Loss from Business.

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#2

Thanks for sharing your research! We’ve done our research as well but we approach our research on a case by case basis since no two hosts have the same tax profile.

In general, we think majority of Airbnb hosts are renting their spaces less than 7 day on average because the convenience and flexibility of a hotel-like stay are factors that drive guests to the Airbnb platform. Check out our blog where we explain why we think hosts should file Schedule C, in general:

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