Renting your property as a short-term vacation home can be a great way to generate additional income, enabling you to own multiple homes or run a year-round business. Although platforms like Airbnb and VRBO have made the process of promoting your rental and collecting payment easier than it used to be, it’s important to remember that you’re still running a business. Among other things, that means you’re going to need to keep detailed records.
Over the years, we have seen many short-term rental owners struggle with Airbnb bookkeeping and other rental properties. Below are our top five bookkeeping tips for every short-term vacation rental owner—whether you have just invested in your first property or are building a multi-state Airbnb empire.
1. Capture ALL expenses related to your Airbnb rental property, no matter how insignificant they seem
A towel, a new set of glasses, a throw rug, a shower repair—they all add up. Make sure you are accounting for all of these expenses, no matter how small. Oftentimes short-term rental property owners miss out on big deductions because they fail to account for all of the little expenses throughout the year. As long as it’s available for use by your renters, it can count as an expense. Starting in tax year 2022, users who earn $600 or more through online selling platforms will receive Form 1099-K, making it even more important to track every expense for tax deduction opportunities.
Update: Congress has delayed the law requiring e-commerce platforms to report information on workers earning $600 or more, which was a part of The American Rescue Plan Act of 2021. This law has been pushed by one year, meaning platforms such as Airbnb, eBay, and Etsy will rely on the threshold of more than 200 transactions worth an aggregate above $20,000 for 2022 (not $600).
For a comprehensive guide to the top small business tax deductions that will save you big, download our free guide here.
Save receipts and add the following to your books:
- Everything you buy for the property, from furniture and appliances to artwork and dishes
- Your travel expenses to and from the property when you’re doing anything related to maintaining the unit
- Repairs and maintenance
Also, make sure you are properly classifying expenses versus improvements. Improvements increase the value or extend the life of the rental property, while expenses are typically less costly and keep the property in its current condition.
To make your Airbnb bookkeeping easier use a cloud-based accounting app to keep track of every little detail. To help you keep track of receipts, choose a tool with a mobile app that will allow you to scan your receipts on the go (we like Divvy and Dext for managing rental property receipts). By cutting out the tedious process of manually tracking expenses, you’ll be more likely to account for everything you spend and have the records you need to take the most allowable deductions against your rental income at tax time.
Pro tip: Are you unsure of whether your expenses count toward your personal use of the property? As long as they are available to your renters, include them in your books. When it comes time to do your taxes, your CPA will calculate your percentage of personal use and calculate deductions accordingly.
2. Keep track of personal use and rental use of your property
Because of the way that your expenses will be accounted for, as well as reporting requirements, it is essential to keep detailed records of when your rental property was used for personal use and when it was being rented out. The IRS considers a property a personal residence if you use it for more than 14 days in the tax year, or more than 10% of the total days you rent the property to guests. If you’re doing maintenance or upgrades on the property, that time doesn’t count toward your personal use, but you still need to include it on your log. There are other exceptions, as well as unexpected tax implications that can arise. We strongly recommend speaking with a CPA who is experienced in filing taxes for short-term rental owners and can assist you with a strategy to get the greatest tax benefits out of your rental.
Tracking use of the property is another area made easier by rental platforms, like Airbnb or VRBO. They provide you with a detailed booking history, making it simple to keep track of and provide a record of the time your property was being rented to guests.
3. Keep separate books for each property
Every rental property that you own should have its own books, and expenses should be classified accordingly. If you are using Quickbooks, you can use class accounting, or tracking category if you are using Xero. If you haven’t migrated from excel, consider using a cloud-based accounting system to keep track of your properties (especially if you have more than one).
4. Maintain a separate bank account for your rental properties
One of the most important things to do when you start a business is to open a separate business bank account. Among other things, commingling your business and personal funds can void personal liability protection. The same goes for rental property owners. Open a bank account that’s dedicated to your rental properties, and also consider using a separate credit card.
Once you’ve separated out your accounts, keeping track of transactions will be a breeze on a cloud accounting platform. You can pull in your bank and credit card feeds to have all transactions appear on your books automatically, and also set rules to help classify expenses.
5. Assets and upgrades
Make sure you are recording the total amounts of all of your assets and major upgrades. Each asset or upgrade should be accounted for individually so that your CPA can set the appropriate depreciation schedule. A common tax savings opportunity is to set shorter depreciation schedules for various types of assets and upgrades. Not everything needs to be depreciated across 27.5 years.
Be sure to record purchases such as:
- Original property purchase (land and building are separate amounts)
- Improvements
- Furniture
- Appliances
- Landscaping
Working with your CPA to determine the appropriate depreciation schedule can potentially lower your taxes as well as increase your return on investment.
If you’re just starting out as a short-term rental property owner or need to brush up on your Airbnb bookkeeping skills and best practices, check out our 5 Weeks to Better Bookkeeping course. If you’re ready to outsource the back office of your rental property business, contact us to schedule a consultation.