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If you're an Airbnb host wondering if your cleaning fees are taxable, you're not alone. This is a common question for new short-term rental (STR) investors, and the answer significantly impacts your investment's profitability.
Yes, the cleaning fees you charge Airbnb guests are taxable income. However, don't let this discourage you. Understanding how cleaning fees impact your tax obligations can help you manage your STR business more effectively and improve your bottom line.
At STR Search, we help high-income professionals maximize the financial benefits of short-term rental investing. In this guide, we'll explain how cleaning fees are taxed, what expenses you can deduct, and how to turn this knowledge into a strategic advantage for your investment portfolio.
From the Internal Revenue Service (IRS) perspective, any money a guest pays you for their stay constitutes rental income. This includes the nightly rate, non-refundable security deposits, extra guest fees, pet fees, and cleaning fees. The IRS doesn't distinguish between these revenue streams for taxation. Whether you're charging $150 per night plus a $75 cleaning fee or a flat $225 with no separate cleaning fee, the total amount is treated as gross rental income.
Instead of viewing this as bad news, consider it part of the fundamental economics of running a business. Every business generates taxable revenue. The key to profitability isn't avoiding revenue; it's managing expenses to reduce taxable income while maximizing ROI. For STR hosts, cleaning fees represent income and an opportunity to claim deductions, which we'll explore below.
Gross rental income encompasses all payments for using your property. According to IRS Publication 527, this includes "any payment for property use," regardless of the label. It's like a retail store's total sales before subtracting costs.
Cleaning fees are one component of this gross income. When a guest books your property and pays $1,000 for their stay, which might include $850 for the reservation and $150 for cleaning, the entire $1,000 is considered part of your gross rental income.
When you receive your Form 1099-K from Airbnb, Vrbo, or other booking platforms, this is evident. These platforms must issue this form and report to the IRS when hosts receive over $600 in payments (as of 2023). The total on your 1099-K includes all money processed through the platform: reservation charges, cleaning fees, and other add-ons. Many hosts are surprised by the 1099-K figure until they realize it includes cleaning fees they allocated for their service.
Check out our guide to understanding your Form 1099-K for a deeper understanding of this form and its tax implications.
Now that the fee is income, let's examine the expenses. Smart STR investors turn a tax liability into a strategic advantage. For every dollar of cleaning fee income, there should ideally be a corresponding deductible cleaning expense to reduce your overall tax burden.
According to the IRS, you can deduct all "ordinary and necessary" expenses for cleaning your STR. Here's a comprehensive list of what qualifies:
The IRS requires substantiation for all claimed deductions. In an audit, you'll need to provide evidence of your deducted expenses. Estimates won't suffice; you need actual documentation.
Here are best practices for tracking your cleaning expenses:
Most STR hosts report rental income and expenses on Schedule E (Supplemental Income and Loss) of their personal tax returns. This form records your income (including cleaning fees) and deductible expenses (including cleaning costs).
The process is straightforward. First, report your total gross rental income in Part I of Schedule E. Then, itemize your expenses. Cleaning and maintenance expenses typically fall under the "cleaning and maintenance" line, though some costs might be categorized differently (e.g., supplies under "supplies").
Here's a simplified example to illustrate how this works:
You collected $500 in cleaning fees, but after deducting $450 in actual costs, only $50 contributed to your taxable profit. In many cases, your cleaning expenses might exceed the fees, creating a net deduction that reduces your overall rental income.
Understanding the tax treatment of cleaning fees is important, but it's just one piece of a larger financial puzzle. For high-income W-2 earners, short-term rentals can offer significant tax advantages beyond expense deductions, with the right property and strategy.
The most successful STR investors don't just focus on maximizing individual deductions. They develop tax strategies to offset W-2 income with rental property losses. This might involve advanced approaches like cost segregation studies, which accelerate depreciation deductions, or qualifying for Real Estate Professional Status (REPS) for greater tax benefits.
However, these strategies aren't one-size-fits-all. They start with selecting the right property, one that generates strong cash flow and maximizes potential tax benefits based on your financial situation.
Just as you need precise data for tax deductions, you need precise data to choose your investment. At STR Search, we analyze over 10 million data points to identify properties with the highest potential ROI, considering cash flow and tax advantages.
Our approach isn't based on guesswork or market trends. We conduct in-depth property analysis tailored to your financial goals, income level, and tax situation. Whether you're building a portfolio of high-performing STRs or seeking your first investment property, STR Search's proven 4-step process ensures you're making data-driven decisions.
No, you cannot deduct the value of your own time or labor. The IRS only allows deductions for actual out-of-pocket expenses. However, you can deduct all cleaning supplies, equipment, and materials purchased for the cleaning. This includes cleaning solutions, vacuum cleaners, and mops.
Yes, cash payments for cleaning services are still deductible, but documentation is critical. Keep a detailed log of the service date, cleaning tasks performed, and amount paid. If you pay a single cleaner $600 or more during the tax year, you must issue them a Form 1099-NEC and obtain their tax identification information.
A security deposit isn’t taxable income when initially received, as long as you intend to return it. However, if you keep all or part of it for damages or extra cleaning, that portion becomes taxable in the year you decide to keep it. Document the reason for retaining any portion of a security deposit, including photos of damages or excessive mess.
Are Airbnb cleaning fees taxable? Yes, they are part of your gross rental income. However, the associated cleaning expenses are legitimate tax deductions that can offset this income. The key is understanding how to document, categorize, and report both the income and expenses to comply with tax laws while maximizing your financial benefits.
Success in short-term rental investing comes from attention to details, from tax optimization to property selection. Stop guessing and start investing with data. Contact STR Search to discover your next high-performing property and build a short-term rental strategy optimized for strong cash flow and maximum tax advantages.
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