Airbnb Hosts – What Tax Considerations Should You Be Aware Of?

For many business owners, regular business trips are a normal part of life. On top of that, there’s the annual vacation. As a result, their own home remains unoccupied for several weeks or even months each year. Through rental platforms such as Airbnb, you can earn money from your home during the time it’s not in use. Airbnb is growing in popularity. As a host, you can certainly earn a good side income this way. Although “private” renting is often not perceived as a business activity, it is considered income. This means there are also legal and tax implications. In this article, we’ll explain what hosts need to keep in mind when using Airbnb.

Is renting on Airbnb taxable at all?

If you offer a room on Airbnb and have a guest from time to time, this activity is often not considered a taxable activity. However, this sense of irrelevance can be very dangerous. Renting out a room or an apartment is generally subject to income tax (in many cases, Section 21 of the German Income Tax Act applies; in larger cases, Section 15 also applies). The question of whether you actually have to pay taxes must be answered on a case-by-case basis and is discussed in more detail in the following paragraphs. However, it is clear that renting on Airbnb is generally subject to taxation!

In 2019, over 160,000 accommodations were listed on Airbnb. The total number of guest arrivals worldwide exceeds 500 million. The private rental business is therefore enormous and steadily growing. In Munich, an overnight stay costs an average of €100. So you don’t have to be a mathematician to realize that, on the whole, landlords are generating high incomes. And where there is income, the tax office is usually not far behind.

Now, one might argue that private rentals don’t generate huge revenues in individual cases. But to think that the tax authorities therefore don’t notice any of this income is a big mistake. The tax authorities are certainly keeping a close eye on the activities of Airbnb hosts. There is a robust system of tax information exchange within the EU. Airbnb has its European headquarters in Ireland. This means the German tax authorities can access the data relatively easily. In some cities, the tax authorities have already taken advantage of this opportunity and caught landlords off guard with a nasty surprise.

Income must be reported on your tax return

All amounts received from renting through Airbnb are considered income. Income from renting and leasing must be reported in Schedule V of the tax return. This applies regardless of how much income you earn. But don’t worry. Just because you’re making a few extra euros doesn’t mean the tax office will immediately come knocking. Taxes are only due on profits. Plus, there are various tax-free allowances and deductible expenses.

Which expenses can be deducted?

Under tax law, only the actual increase in taxable income should be taxed. This means you only have to pay taxes if there is actually a profit left over. To determine this, the related expenses must be deducted from the income. In general, only costs directly related to generating income can be deducted. These include:

• pro-rated rent
• pro-rated utility costs
• Fees for advertisements and online platforms
• cleaning expenses
• costs for tradespeople

Most of the expenses listed apply to the entire apartment. However, only the proportionate expenses for the rented room may be claimed. In the tax return, the expenses are listed as income-related expenses or business expenses. The tax office may request proof of the reported costs. Therefore, relevant documents such as the lease agreement or utility bill must be kept on file.

The basic deduction also applies to Airbnb income

Even if a profit is generated after deducting all costs, this does not necessarily mean that taxes are due. Everyone has expenses related to their general standard of living. The government provides for a certain non-taxable amount for this purpose. This basic exemption currently stands at 9,408 euros in 2020. Income is generally only taxable if the total taxable income exceeds the basic exemption amount. When determining taxable income, income earned through Airbnb must also be included. However, most business owners and employees will generally exceed the basic exemption amount!

Exemption Threshold for Short-Term Rentals

If parts of a self-occupied residence are temporarily rented out, rental income of less than 520 euros per year may remain untaxed for simplification purposes. However, as soon as a landlord exceeds the exemption limit, the total income must be reported on the tax return. The entire amount is subject to tax.

Sales tax on Airbnb rentals

When renting through Airbnb, it’s not just income tax that needs to be considered. Sales tax may also apply. For business owners who generally fall above the small business threshold, income from Airbnb must also be reported with sales tax. Those who rent through Airbnb only as a side business and do not otherwise generate commercial income are unlikely to be required to pay sales tax. Sales tax applies only if gross revenue exceeded 22,000 euros in the previous year and is projected to reach 50,000 euros in the current year. If this threshold is not met, you are considered a small business owner and are not required to report sales tax. However, it is possible to voluntarily opt into the sales tax system. Advantage: You can deduct input tax. The issue of sales tax and Airbnb is rarely relevant for occasional subletting. Nevertheless, you should be aware of the basics and possibly seek advice from a tax advisor.

Hobby on Airbnb

Normally, most people want to avoid tax obligations. In certain cases, however, tax liability combined with losses can lead to advantages. Some business owners seek to improperly claim this tax benefit. To counteract this tax exploitation, tax law includes the concept of a “hobby.” If the authorities do not see any intent to make a profit in the rental of your room, this is considered a hobby. This means that any profits or losses incurred are irrelevant for tax purposes. Income from subletting is then completely insignificant for tax purposes and does not need to be reported on your tax return.

Questions for a tax advisor in Düsseldorf

Income tax and tax returns can quickly become confusing. Special types of income, such as renting through Airbnb, should therefore be discussed with a qualified tax advisor. At our offices in Düsseldorf and Oberhausen, our team works to provide the best possible service. Do you have questions? Simply contact us to schedule a consultation. With our deep industry expertise, we can also provide tailored assistance to your business.