By definition, most
Airbnb and other sharing economy real estate hosts are apartment
renters, since most condo and coop bylaws prohibit owners from
providing short-term rentals. Not only are many renters not
familiar with business tax reporting, but they typically don't
have a large amount of tax deductible costs related to the
rental. Although the hosts' rental expense may be partially
deductible, it will be limited to the allocable space used by
the guest. The typical host as a result will not have the usual
real estate owner tax deductible expenses such as deprecation,
mortgage interest, and repairs and maintenance. This means that
a large portion of the hosts rental income will likely be
considered taxable income. Hosts in rent-controlled apartments
will have even smaller amounts of tax-deductible expenses. Hosts
with large amounts of short term rental income (particularly if
their other sources of taxable income are small) may find
themselves with first-time Federal and state quarterly estimated
income tax reporting obligations.
In addition to income taxes, many jurisdictions (particularly major cities) impose hotel and occupancy taxes and other short-term occupancy transit taxes. Since the federal government has tax information sharing agreements with the state and local government jurisdictions, the gross income amounts may be readily accessible by the local taxing authorities.
With today's mobile
phone applications, travelers to and from many states and even
countries can simply call a car sharing service when they travel
to almost any destination. Again, the revenue earned by the
vehicle host will presumably be readily accessible to all taxing
authorities. The vehicle host may already depreciate the vehicle
if used in another business entity. This means that most of the
gross revenue less ride-specific costs such as tolls and perhaps
gasoline will become taxable income.
For independent contractor professional drivers, the added income may result in both meaningful amounts of increased income and self-employment taxes. Accordingly, independent drivers may need to plan for large tax increases and larger quarterly estimated tax payments. In the deregulated car sharing industry, mobile phone applications in many instances enable variable pricing for high demand events, which can further augment the independent drivers income.
The greatly expanding sharing
economy participants need to consider and understand the taxable
implications of their provided services. Tax advisers serving
the shared host community need to help their clients prepare for
this new economy.