You’ve decided to make some extra cash by renting out your home on Airbnb, Homeaway, or some other rental service. Great, but make sure you read the fine print, especially when it comes to taxes. 

You have 14 days per year to open your home to others and collect rent free of federal taxes. It’s a provision sometimes referred to as the Masters exemption because it’s popular with homeowners in Augusta, Ga., who rent out their places in April for the Masters Golf Tournament. The tournament lasts seven days, so the homeowners face no tax implications. 

What if your visitors want to stay longer?   

As long as they don’t hit the 15-day mark, you’re OK. At Day 15, you will owe federal income tax on all of your rental income. That’s why most renters stick with the 14-day period. It’s less taxing, you might say. 

Even if you don’t plan to rent your home for more than 14 days, you need to be aware of tax issues in your home state. Some states expect you to collect lodging taxes on your home or room rentals. Airbnb collects those taxes in some states, but not all. You need to make sure you know the rules for your state, and, if you must collect lodging or other taxes, you may want to include those taxes in your rental fee. 

Do I have to report my income to the IRS? 

The IRS still is catching up on how technology has changed our lives. Currently, there is no place on the tax return for you to acknowledge that you had rental income that it is tax-free. Why is that a concern? Well, Airbnb and others will send you a 1099-K or 1099-MISC that shows how much income they have reported to the IRS on your behalf.  When the IRS sees the 1099, it may also want to see some accounting for the income on your tax return. 

You should check with your tax professional about how or whether to report this income. Some advise their clients not to include the income on their tax return but to keep detailed records to share with the IRS should they want to know more about the money. The records you should keep include your rental agreement, rental dates and fees charged. 

Disclaimer: Tax Lounge is an informational source for industry news and related topics. We take every effort to provide honest and accurate tax information, but this information should not be a substitute for professional tax advice. Use our office locator to find your local tax office or subscribe to our free newsletter.