In this section, I'll review the rules for who must pay taxes and who is exempt. There are a few interesting caveats to be aware of.
I am an Airbnb host. Am I subject to income tax in the U.S.?
You are subject to U.S. income tax if you have U.S.-source income.
Generally, income derived from U.S. assets, such as rental properties located in the U.S., is U.S. -source income and subject to U.S. income tax.
Domestic rental income (i.e. rental income from a property located inside the U.S.) is taxable in the U.S. regardless of where the person in receipt of that income resides.
For example, an individual living outside the U.S. who is in receipt of rental income from a U.S. property is still subject to tax in the United States.
Foreign rental income (i.e. rental income from a property located outside the U.S.) is taxable in the U.S. if the host is a U.S. citizen or permanent resident.
An individual in receipt of foreign rental income should engage a tax advisor to ensure that rental income is correctly reported and any tax due is paid timely.
If you are subject to U.S. income tax, you must report your rental income as a cash-basis or accrual- basis taxpayer.
If you are a cash-basis taxpayer, you report rental income on your return for the year you actually or constructively receive it and you deduct all expenses in the year you actually pay them.
You are a cash- basis taxpayer if you report income in the year you receive it, regardless of when it is earned.
Most individuals are cash-basis taxpayers.
You constructively receive income when it is made available to you, for example, by being credited to your bank account.
If you are an accrual-basis taxpayer, you generally report income when you earn it instead of when you receive it and you deduct expenses when you incur them instead of when you pay them.
Accrual-basis taxpayers should engage a tax advisor to ensure that rental income and expenses are correctly reported.