The sharing economy has added options for travelers through Airbnb.com and Vacation Rentals by Owner. They also provide a way for an owner to make ends meet and offset high California housing costs. However, these services often skirt traditional hotel taxes.
Los Angeles City officials recently warned that people renting rooms face the same taxes that hotels must pay. The hosts must collect and pay the taxes. A City Council meeting addressed the challenges of pinning down the addresses of those renting out rooms. A finance official recommended sending warnings out through the websites themselves to put hosts on notice.
Airbnb responded by stating it provides L.A.-specific resources that include guidance on following local tax laws.
Airbnb, for instance, tracks the amount a host earns from guests over the year and sends a Form 1099 to each host. Any income earned through the site is generally included as rental income on tax returns. If you have rental income, you might however be able to deduct some operating expenses and depreciation. In addition, repairs are deductible. This deduction does not extend to a renovation that increases the value of the property, however.
While Los Angeles City Council officials cannot require Airbnb and other sites to collect the taxes, they may seek a voluntary agreement regarding tax collection. Malibu voted earlier this year to subpoena websites to ensure proper tax collection on short-term rentals. In northern California, critics have complained that short-term rentals reduce housing supply.
For those who rent rooms or a portion of their home through rental websites, increased regulation may be on the horizon. As cities across the state are making taxation of short-term rentals a priority, consult a tax attorney who can offer guidance on compliance.
Source: L.A. Times, "L.A. to warn Airbnb hosts to start paying hotel-type taxes," Emily Alpert Reyes, September 9, 2014.