By Jennifer Gorman, TurboTax
Airbnb is an online marketplace for listing and renting vacation properties that’s gaining popularity around the world. Different from a traditional Bed and Breakfast, many Airbnb’ers only rent a portion of their homes every once in a while, when it’s convenient. While a great way to supplement your income, renting a part of your home does have tax implications.
Income is Income
Whether it’s a paycheque or bank interest, income is income as far as taxes are concerned. Airbnb income is no different. If you make money from renting out an extra bedroom, that’s taxable income and it must be reported on your tax return.
Business Income or Rental Income?
How your report your Airbnb income depends on the services you provide in addition to just the room rental. If you offer only use of the home, chances are it’s straight rental income and will be reported on a T776 – Statement of Real Estate Rentals.
If you offer additional services such as meals or laundry services, you may be, in fact, running a business instead of a rental. If this is the case, you’ll be required to report your income and expenses on a Form T2125 – Statement of Business Activities. Although both rental income and business income are both taxable, there is one big difference – CPP. If you operate a small business, you’re responsible for CPP contributions due on that income – in fact, both your share and what would have been an employer’s share of your CPP contributions are payable at tax time. Rental income is not subject to CPP.
Lowering the Tax Bill
To offset the extra income from your Airbnb venture, you are allowed to claim eligible expenses. This includes costs such as property taxes, insurance, heat, electric, etc. Keep in mind that only a portion of these expenses will result in a deduction – the portion of your home being rented to be exact. If you rent one room in your eight room home, only an eighth of your hydro bill can be applied to the rental income. And, depending upon how much of the year you have the room for rent, the portion could be even smaller.
Keep Records and Plan Ahead
Keeping all of your Airbnb related info together makes tax time much simpler. Looking at a well-kept journal of your rentals is much easier than trying to sift through emails or relying on your memory. Something as simple as signing up for online billing for utilities can save time and hassle next spring.
Setting aside a portion of your Airbnb income each time you have a renter is a great idea. Even if it’s just ten percent, you’ll lessen the hit at tax time. Also, be mindful of how much you’re making overall – from all sources. Depending on your income level, that extra bit of cash from your Airbnb venture may push you over certain income limits. You could be disqualified from benefit programs such as the GST/HST credit, CCB, or OAS if you earn too much from your rental.
TurboTax has you covered in both situations. If it is considered a rental income, our Premier version is best, while Home and Business is ideal for reporting business income and features added guidance to help you along the way.
