Airbnb can be a great source of rental income if you have the right rental property. Just like with any business, your rental business has to follow government rules.
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Is Airbnb a business?
Your Airbnb rental activity is a business in the broadest sense of the word. You’re providing a service to make money, so you can say you run a business.
What you probably really want to know is if you count as a business under the law or for tax purposes. Those questions can get more complicated.
Is Airbnb legally a business?
Whether your AirBnB falls under your state or local government’s business laws and regulations depends on how they’ve written their laws.
In some places, you don’t need to do anything or tell anyone that you have a rental business.
In other places, you may need to get business licenses or permits, have inspections, or meet other legal requirements.
It can also depend on how much rental activity you have. Some places might exempt you if you only rent out your home a few nights a year. Other places go by the number of rental properties you have.
Never assume that downloading the AirBnB app is all you need to do. Don’t go by what other people are doing because they may be breaking the law.
Check what business laws might apply in your area before you offer your place for rent. If you don’t, you could face large fines.
Can you do AirBnB if your condo doesn’t allow you to run a business?
If you live in a condo, you may have rules that say you’re not allowed to run a business.
Airbnb can fall into a gray area. Even when you’re not allowed to run a business, you’re often allowed to rent out your property.
You’ll need to carefully study your condo’s Covenants, Conditions, and Restrictions (commonly known as CC&Rs).
In recent times, condo boards have tried to remove all doubt. Many condo owners don’t want to live next to an Airbnb, so many condos have voted not to allow short-term rentals.
If your condo bans short-term rentals, you may have to follow that rule. The main exception would be if you think the rule was passed improperly or outside of your condo board’s authority.
Can you do AirBnB if your apartment doesn’t allow you to run a business?
Like condos, apartment owners are frequently updating their leases to not allow short-term rentals. If you do Airbnb in violation of your lease, you could face an eviction and possible lawsuit for damages.
You generally don’t have a right to AirBnB even if your state says landlords must approve subleasing. The right to sublease usually means you can find a longer-term tenant.
If your lease only has a general ban on business activities, there’s a good chance your landlord could win if they want you to stop. Airbnb simply isn’t a normal residential use of a rental property.
Can you do AirBnB if you’re renting a single-family home?
If you’re renting a single-family home, duplex, or small apartment building, it will come down to your lease and whether you’re breaking any laws.
Some landlords won’t care as long as they get paid and you take care of any damage. Even if you’re making money, they may just want to get a fair rental price without the hassle of dealing with Airbnb guests.
Other landlords might have concerns about property damage or bothering neighbors. If your lease is vague or doesn’t cover AirBnB, you might be able to win in the short term. However, you can expect your lease to not be renewed.
Is AiRBnb a business for taxes?
Airbnb presents a tricky situation for taxes.
The key question is whether you have to pay self-employment tax.
When you have a passive rental activity, like renting out a house to a long-term tenant, you generally don’t have to pay self-employment tax. When you provide substantial services, you do have to pay self-employment tax.
Substantial services can include things like cleaning, entertainment options, and kitchen utensils. The more you do to provide your AirBnB guests with a hotel or resort experience, the more likely it is you’re providing substantial services.
You should ask a tax professional if you should file your taxes as active income on a Schedule C or passive income on a Schedule E.
Does it matter if you hire an outside maid service or other contractors?
You may be wondering if hiring someone else to do all the work of running your Airbnb can make it so you don’t count as a business.
That’s an argument that might tip the scale for income taxes.
It usually won’t work for meeting your legal requirements. No matter who does the legal work, the rental property has to follow the laws and meet any local requirements.