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I have been living by myself in a large multi-bedroom apartment in a 3-apartment house owned by my landlord, who lives downstairs. We have been renting out the apartment I live in from time to time on AirBNB. The income goes into my PayPal account. At the end of the month, I

  1. pay rent,
  2. pay a portion of the AirBNB income to my landlord to cover his mortgage on the apartment,
  3. pay him one half of the leftover income.

    At the end of the year, how do I pay taxes on the AirBNB income, and how do I avoid paying taxes on ALL of the income I received through AirBNB?

I see a few different options.

A. I am self-employed. I could report the total income from AirBNB as part of being self-employed, and list the amount I paid to my landlord as an expense.

B. I could only report the part of the income that I kept for myself. Or, I could take taxes out of the income before I pay my landlord.

C. instead of reporting the income as self-employment income, I could report it, in full or in part, as some other kind of income(?).

D. I could not report the income at all?

I'm just not clear what my best (legal) option is.

I am in Massachusetts, and we will end up renting the apartment for 30+ nights during the current tax year.

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    Not reporting it is not a legal option. I'm sure AirBNB has a recommended solution for this, but the fact that you're splitting the income with your landlord is going to complicate matters. – keshlam Sep 4 '15 at 0:22
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Options A and D are obviously irrelevant being completely illegal. Doing so may result in criminal tax fraud/evasion charges.

Options B and C are essentially the same.

You report all of the income as your rental income on your Schedule E. You then deduct qualified expenses. The portion you pay your landlord is essentially rent, and you can deduct it (it will be income to the landlord reported on the landlord's schedule E). However, you may need to issue 1099 to the landlord if you pay him over $600/year.

Keep in mind that there are special rules for deduction on rental property which is only partially used for rental. For example, you cannot have expenses exceeding the actual rental income (i.e.: you cannot generate a tax loss from a partial rental).

You will need to prorate your expenses (including rent paid to the landlord) based on the rental/personal use ratio.

  • Thanks for putting me on the right track - this is extremely helpful. I looked at Schedule E & instructions. The rent I pay for personal use of the apartment is a fixed amount. The additional money I pay to my landlord from the AirBNB income depends solely on the use of the proprety as an AirBNB rental, i.e. "other rental expenses not related to your use of the unit as a home, such as advertising.." which would go on line 19 as an expense, and not be pro-rated, because it is not related to personal use. That's what I'd like, and I think is the spirit of the tax, but I'm not sure if it holds up – Colin Sep 4 '15 at 21:06
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    For someone who doesn't know how to report rental income, option A isn't obviously illegal- it only becomes obvious when you know that rental income is considered a specific type of income, with specific forms associated with it. Otherwise, good answer. – Karen Sep 11 '15 at 20:24
  • @Karen to me its quite obvious that if I'm self employed doing X, income from Y is not related to it. – littleadv Sep 12 '15 at 19:22
  • Actually, D is legal if it is part of your home and you rent it out less than 15 days a year... – Debra Oct 15 '17 at 12:13

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