A friend of mine showed up last night at a place we sometimes meet. He looked like Red Sox pitcher Chris Sale after lobbing a game-ending home run to Aaron Judge of the Yankees. He was supposed to have been on a plane to Italy. I asked him what happened.
“We were all set to head out,” he said. “First leg: Rome. But I just canceled our tickets, like, a second ago.”
I asked why.
“Airbnb scam,” he said.
It was supposed to be the perfect trip. He and his wife have a 2-year-old, so they were looking for a destination vacation that would let them hang out in one place. The patch of paradise they rented was not an easy journey: two flights, a long car ride, a ferry and another long car ride.
That said, it seemed worth it. The fairy tale villa was on an island off the coast with views of the Mediterranean, a swimming pool and more than enough room for three families. The fee was steep, but not terrible since it was being shared by three renters: 6,000 euros a week.
“We were bummed that we had to be a day late to the place, but it turned out to be a godsend, because when our friends got there yesterday, the owners were there,” my friend said. “They weren’t renting the place. It was the third time that month they’d had people show up who had rented their house on Airbnb.”
The only inaccuracy in his statement is this: They didn’t rent the house via Airbnb. They thought they did.
A similar thing happened to a woman who arrived in New York from Barbados to buy her wedding dress. Malissa Blackman rented two apartments in the heart of the city to accommodate her mom, two sisters and two bridesmaids. When they arrived at 400 Fifth Avenue, the doorman gave the bad news. They’d been suckered, and they weren’t the first victims to come looking for nonexistent rental apartments in the building. At least two other groups had succumbed to the same nefarious plot, paying as much as $400 a night for the fictional flats.
Out $2,000, Blackman was forced to pay for two hotel rooms at an additional cost of $2,600. The next day, she found her perfect dress made by her favorite designer, but after the swindle, the $2,500 price tag was just too much for her. She had to get a cheaper dress and was heartbroken.
What Makes These Scams Possible?
You’re not alone in thinking that Airbnb should have shut down these scams the first time they happened to a customer using their site. But they haven’t because the scams didn’t occur on their site.
Blackman had responded to a property on “airbnb.com” and started to discuss terms with the “owner” of the listing on the site’s proprietary and secure app. She was offered another option during that chat and was asked if it would be possible to email the link. She allowed it, and that was how the scam went down.
Airbnb is clear about the danger of going off its site or app to conduct business. They send a warning email if a member of Airbnb asks to communicate via email. The problem here is that these warnings can be missed in the flurry of email that is triggered when you do business online. Compounding that problem, warnings are so common these days we may ignore them so long as we feel we’re in familiar territory — for instance, while looking at a what appears to be a legit listing on the site warning us.
In Blackman’s case, the scammer sent her a link that took her to a clone site, a perfect copy of Airbnb with one key difference: The URL was airbnb.com-listining-online31215.info. At first blush, this might seem like a hard thing to detect, and maybe you are right there with Blackman, feeling perplexed. There is a tell though, and one you won’t miss going forward if you want to play it safe on the internet. The URL in question goes to a dotinfo address, not a dotcom.
Airbnb phishing tales abound, but these ploys are avoidable if you know what to look for. (Here are three dumb things you can do with your email.) If you are asked to wire money or pay in a way that doesn’t use Airbnb, stop communicating with the renter. It’s a dead giveaway a scam is afoot. Whether you are lured off the site by an Airbnb user or you receive an email with a link to the site, always look at the URL carefully. The differences can be subtle. Better yet, take Airbnb’s advice and stay on its site or app.
The summer travel season is nearly upon us and if you’re a fan of staying with Airbnb hosts instead of hotels, you probably already know some locations charge some or all of the same taxes that hotels charge.
If you don’t already know that, surprise! The number of locations charging taxes for that spare room or whole house is only growing. Beginning May 1, Texas will join 30 other states where taxes are charged at either the local or state level or a combination of both.
Clearly, there’s a financial benefit for the communities levying these taxes. The Dallas Morning News estimates Airbnb would’ve remitted an estimated $8 million in Texas state taxes in 2016. However, it’s not the states and cities that initiated the effort. For that, you can thank the hotel industry, which has been lobbying hard for the taxes.
“Airbnb has brought hotel pricing down in many places during holidays, conventions and other big events when room rates should be at their highest and the industry generates a significant portion of its profits,” Vijay Dandapani, chief executive of the Hotel Association of New York City, told The New York Times in a recent article.
While Airbnb has said on its website it is happy to collect its fair share of taxes, there’s clearly some negative feelings about how it’s all gone down.
“The hotel hypocrisy is almost unbelievable,” Nick Papas, a spokesman for Airbnb, said in an email. “The hotel cartel wanted Airbnb to collect taxes and when we implemented a way to do so, they changed their position and lobbied cities to leave millions of dollars on the table.”
The continuing fight has led to a variety of tax schemes across states and municipalities, creating a confusing landscape for hosts and guests.
What It Means for Airbnb Hosts & Guests
If you’re considering becoming a host, be aware that the taxes present some confusion for some people renting out their spaces.
The reasons are numerous and varied. To start, no one really likes paying taxes. But additional layers of frustration can come with the Airbnb taxes. They can be levied and remitted in different ways depending on the tax laws in particular states or municipalities and Airbnb’s agreement with those entities. Then there are the host’s options of how to charge guests once taxes are implemented. Many hosts get confused when it comes to collecting the tax, where to note it on the listing and the bookkeeping process.
Jeff Cook, who owns several properties in Pennsylvania, said sales and use taxes were already in place when he started hosting with Airbnb several years ago. “The biggest issue here is that many people weren’t paying it simply because they didn’t think they had to,” he said. “I paid it from the get-go, because I wanted my business to be legitimate.”
But it wasn’t easy. Cook’s price for guests bakes in the 6% state and 3% local tax, so he doesn’t note it on his site and doesn’t have to worry about asking for local taxes when guests arrive. His revenue is submitted to Airbnb, but then it gets a little complicated.
Airbnb removes their 9% fee and sends him the remainder, he said. “And then I have to figure out what the tax amounts are independently. If something could be done better … perhaps if they distinguished between the tax and the regular revenue that would be helpful. The lump sum is sent to me, I figure out what the correct tax amounts are, and then I submit a return and payment to the appropriate authorities.”
Laura Jesse, a host in San Antonio, said she’s ambivalent about the tax that begins in Texas next week. “I live near projects that were funded in part with the [state’s occupancy] tax,” she said. “I get a fair amount of convention business as I live near downtown, etc.”
As for raising her rates to offset the taxes, Jesse said she has no plans to do so at this time.
Taxes mean your stays are probably costing more – anywhere from 3% to 15% depending on locale and host. On top of that, the process can become confusing depending on how the host applies those taxes to your bill.
Airbnb addresses how that can be done on its Airbnb Citizen site, but there are no clear-cut guidelines available, so many hosts are left scratching their heads and conferring with other hosts on how they alert guests and even charge them.
Airbnb offers guidance thusly:
“If you determine that you need to collect tax, you can usually either add it within a Special Offer or ask your guests to pay it in person. In each case, it’s important that guests are informed of the exact tax amount prior to booking. If you choose to collect tax outside of your listing’s rates, please note that it should be collected only upon arrival and that we are unable to assist with collection.”
So, if your host suddenly asks you to hand over a little cash to cover the taxes, it’s probably not a scam. As Airbnb explains on its site, “this needs to be clearly stated on the listing prior to booking.” So, if the host can’t show you where that’s stated, you should be wary.
Hopefully, however, most hosts will bake in the taxes like Cook does, and you will see only a price increase at your favorite Airbnb homes. (Travel often? These travel rewards credit cards could be right for you.)
“I think separating taxes as a line item [on guest bills] would help clarify the issue for people,” Cook said. “I’m a big supporter of Airbnb. I think they are an awesome company, and as they evolve and grow, distinguishing tax through line items would be beneficial to everyone.”
Home sharing through sites like Airbnb, VRBO and HomeAway are becoming more and more popular. My family jumped on the Airbnb hosting train recently, and we made a tidy little side income in January renting out our spare room. I won’t have to pay taxes on that income until next tax season, but I’m already wondering what expenses I can write off.
It turns out that lots of Airbnb host expenses are deductible, and those deductions work for other home-sharing services as well.
The Basics of Taxes & Home Sharing
Renting out a part of your home is similar to becoming a landlord for an entire property, and it’s a lot like running a small business. The general IRS rule is that you can deduct expenses that are “both ordinary and necessary” for your business. But you’ll pay taxes on any income that you earn over and above those deductions.
There’s one caveat: the 14-day rule. If you rent part or all of your primary residence to others for less than 15 days out of the year, you don’t have to report that rental income, but you can’t deduct any expenses.
If you really like being a host, though, and rent all or part of your home for 15 days or more, you’ll have to report the income. So you’ll want to take all the deductions you possibly can. When it comes to deductions for rentals, you need to be careful, though. You can only deduct expenses that were spent on your business.
So if you buy new bath towels that your renters just happen to use in your shared bathroom, you can’t deduct the full cost of the bath towels. But if you buy linens just for your Airbnb renters, you can deduct the full cost.
With that in mind, below are some expenses you might deduct.
9 Expenses You Could Deduct
1. Service Fees: Most short-term rental services charge hosts a fee that comes off the top of the rent paid by the guest. Even if this fee comes out of the guest payment before it hits your bank account, you can deduct it as a business expense.
2. Advertising Fees: If you pay for any advertising outside of that offered by the rental company (and, therefore, covered with your service fees), deduct those expenses.
3. Cleaning & Maintenance Fees: If you buy cleaning supplies for your rental room, deduct those. If you pay a professional for cleaning, deduct that expense, too. Any maintenance costs related to the rental property are also deductible. If you pay for whole-house maintenance, such as a furnace tune-up or a roof replacement, a part of that cost will be deductible.
4. Utilities: If you’re only renting part of your home part of the time, you’ll split the utilities — part as a personal expense and part as a business expense that can be deducted.
5. Property Insurance: If you need to pay more insurance on your home because of having renters present, you can deduct the extra cost. Even if your property insurance fees haven’t increased, you can write off part of the expense as a business expense.
6. Property Taxes: The same goes for property taxes: You can write off the portion of your property taxes equal to the portion of your home being rented.
7.Trash Removal Services: Services that you pay the municipality for can be deducted, because they’re both reasonable and necessary.
8.Property Improvements: You can deduct the cost — or the interest paid on a loan, if you don’t pay cash — of improvements made to the property if those apply to the rented area.
9. Furniture, Linens & Food: You presumably provide guests with at least a couch, if not a bed. If you buy new furniture for your guest room, you can deduct that. You can also deduct the cost of linens, curtains, shower supplies, or food that you provide to your guests.
Splitting the Expenses
Unless you’re renting your whole home for the full year, you’ll need to prorate these deductions. In short, you can only deduct these expenses when they actually apply to the rental space while it’s being rented.
As you can see, things can get hairy! If you decide to host through Airbnb or another similar service this year, here’s what you need to do:
Keep detailed records. Know exactly when you had renters and for how much. Keep all your receipts related to expenses for the rental, or for improvements or utilities for your whole house.
Know your local laws. In some cases, you may have to pay additional local taxes when you do a short-term rental. Get familiar with those laws, which vary by state and locality.
Get a professional to help. Because these issues are so complex, it’s best to consult with a tax professional about your rental income, especially if you made a decent amount of money through the year. You want to take all the deductions you can to lower your tax bill. But you also want to make sure you’re doing it legally.
If you’ve ever wanted to make a little extra money on the side by listing your sofa, spare bedroom, guest house or even whole house on a service like Airbnb, you’ve probably wondered just how much money you could make.
After all, there are all those stories of people paying their monthly mortgage payments or annual tax bills through their rental income. What a great way to put an asset you already have to good use, right?
Yes, if your situation is right for the opportunity. When managed properly, these rentals can end up bringing in more than a traditional monthly rent can, though it does require significantly more work due to the constant turnover of renters.
As with any business, though, there are risks that could end up undermining any money-making opportunity your spare sleeping spot might afford. That’s why it’s a good idea to exercise caution and do your due diligence before jumping in.
Here are five things that could end up costing you money as an Airbnb host.
1. Higher Insurance Premiums
Yes, it’s true that Airbnb provides Host Protection Insurance, providing primary liability coverage for up to $1 million per occurrence in the event of a third-party claim of bodily injury or property damage related to an Airbnb stay. But that doesn’t mean you’re not going to need to alert your homeowners insurer that you’re operating as a rental property, even on a part-time basis.
For example, I have a guest house that I considered making available on Airbnb and I talked to my insurer about how that would impact my coverage. In a nutshell, my premiums would have doubled, significantly impacting any income I would’ve made from listing on Airbnb. I decided it wasn’t worth the hassle. Now, sure, I could’ve chosen not to tell my insurer about the rentals and just contact Airbnb with any claims, but that left me feeling very exposed when it came to, well, a lot of things.
Coverage is limited to $1 million per occurrence, $2 million per location. The policy aggregate is $10 million for all insured locations in the U.S. Shared limits are not your friend.
Coverage is in excess of any other available coverage. The host must submit the claim to his homeowners insurance and the claim must be denied by that company before Airbnb’s insurance will pay. Presumably, the homeowners insurance may also be cancelled for business use.
The summary document lists these other “key” exclusions: (1) intentional acts (of the host or any other insured party), (2) loss of earnings, (3) personal and advertising injury, (4) fungi or bacteria, (5) Chinese drywall, (6) communicable diseases (7) acts of terrorism, (8) product liability, (9) pollution, (10) asbestos, or lead or silica, and (11) insured vs. insured (i.e., host sues Airbnb or vice versa).
The coverage is limited to an actual stay, not a booking. No show — no coverage. Overstay or early arrival? No coverage.
“What if a guest breaks into the host’s gun safe, steals guns and goes on a crime spree? Is there coverage for the host from any ensuing lawsuits? Probably not,” Hayesis wrote. “Vacation rental websites like Airbnb are doing their best to protect themselves by offering what looks like insurance to their hosts. But hosts are shouldering a lot of risks with limited protection. So before you sign up or rent your home again, you may want to think twice. The bottom line appears more red than green.”
Airbnb did not respond to Credit.com’s request for comment, but does provide the following on the Airbnb website:
Here are some examples of what the Host Protection Insurance program should cover:
A guest breaks their wrist after slipping on the rug and brings a claim for the injury against the host.
A guest is working out on the treadmill in the gym of the apartment building.
The treadmill breaks and the guest is injured when they fall off. They bring a claim for the injury against the host and the landlord.
A guest accidentally drops their suitcase on a third party’s foot in the building lobby. The third party brings a claim for the injury against the host and the landlord of the host’s building.
Some examples of what the Host Protection Insurance program doesn’t cover:
Intentional acts where liability isn’t the result of an accident.
Accusations of slander or defamation of character.
Property issues (ex: mold, bed bugs, asbestos, pollution). Auto accidents (ex: vehicle collisions).
2. Turned Down for a Mortgage or Other Home Financing
Banks also are closely scrutinizing how properties are being used when it comes to writing new mortgages and even refinancing. The issue is primarily about how to classify loans for homeowners hosting through Airbnb and other services Are they a primary residence? An investment property? Both? Mortgages on investment properties have traditionally been viewed as riskier.
One example is Brad Severtson, a resident of Seattle whom the Wall Street Journal recently profiled. Severtson had reportedly earned about $30,000 in 2015 renting out a cottage in his backyard. The Journal reported that he thought the extra income would work in his favor when he wanted to refinance a home-equity line of credit.
“The bank turned him down, saying it didn’t allow home-equity lines of credit on properties in which the homeowner is operating a business, including Airbnb,” the Journal reported.
3. Higher Taxes
Yep, if you’re making rental income, you’re going to be expected to pay taxes on it. Airbnb says on its website “as a host, your earnings may be subject to U.S. income taxes. To assist with U.S. tax compliance, we may collect your taxpayer information. Even if you’re not a U.S. taxpayer, we may still require certain information from you.”
There are some exceptions to keep in mind, though.
According to the Internal Revenue Service, if you use your home or vacation property as a personal residence and rent it for fewer than 15 days in a calendar year, you do not have to claim that income on your personal taxes. In this case, do not report any of the rental income and do not deduct any expenses as rental expenses.
Likewise, if you rent your home or vacation property to others that you also use as a personal residence, limitations may apply to the rental expenses you can deduct, according to the IRS. You are considered to use a dwelling unit as a personal residence if you use it for personal purposes during the tax year for more than the greater of 14 days or 10% of the total days you rent it to others at a fair rental price.
It is possible that you will use more than one dwelling unit as a personal residence during the year. For example, if you live in your main home for 11 months, your home is a dwelling unit used as a personal residence. If you live in your vacation home for the other 30 days of the year, your vacation home is also a dwelling unit used as a personal residence, unless you rent your vacation home to others at a fair rental value for 300 or more days during the year.
4. Losing Your Lease
If you have a landlord and want to host on Airbnb, the very first thing you should do is talk to your landlord and get their permission to advertise your sofa, your spare bedroom or the whole property. And get it in writing.
There are literally hundreds of horror stories of folks not talking to their landlords, only to be sued or have their leases terminated as a result.
5. Being Cited for City Ordinance Violations
Many cities have restrictions about hosting on sites like Airbnb, whether you are a homeowner or a renter. That’s why it’s a good idea to first check on the Airbnb site about what regulations may apply and then follow up with your local government. The last thing you want is to be cited for being in violation of local ordinances.
As Airbnb states on its site, “When deciding whether to become an Airbnb host, it’s important for you to understand the laws in your city. As a platform and marketplace, we don’t provide legal advice, but we do want to give you some useful links that may help you better understand laws and regulations in your town, city, county, or state.”
Remember, making a little extra money from a side gig is a great way to boost your savings abilities or help pay off any debts you might owe (you can see how your debt is impacting your credit by getting your free credit report summary on Credit.com). But, as this list, shows, it’s wise to do your research first. What might seem like a great opportunity can end up costing you big time. So, do your homework before your foray into renting your space and make sure your home can actually work for you.