Can I deduct any portion of my home Wi-Fi bill because I occasionally rent out a room on Airbnb?
It depends. If you rent a room in your home no more than 14 days per year, through Airbnb, VRBO, HomeAway, FlipKey, or the like, you get no tax deduction. But this isn’t so bad because you don’t have to pay any tax on the income you earn. You don’t even have to report it to the IRS.
If you rent out a room more than 14 days per year, you’ll have to report the income you earn to the IRS and pay tax on it. But you’ll also be entitled to deduct your rental-related expenses. However, there are very strict limits on such deductions to ensure that you don’t deduct personal expenses as rental expenses.
When you rent a room in your home, the IRS does permit you to deduct a portion of your expenses for your entire home such as electricity, gas, heating oil, water, and trash removal. However, the IRS does not allow deductions for your personal expenses. For this reason, you cannot deduct the cost of your phone line, even if your tenant has unlimited use of it. But, if you install a second phone line just for your tenant’s use, the full cost is deductible as a rental expense.
It’s possible that the IRS could view your Wi-Fi service as similar to your first phone line. It’s a personal expense you have to pay even if you don’t have a tenant, and the fact that a tenant has use of it does not increase your cost. In this event, the cost might not be deductible. Unfortunately, the IRS has yet to provide any guidance on this issue.
However, even if you are allowed to deduct your Wi-Fi service fees, you’d have to allocate your expenses by time and space. Only the proportion of the expense that can be allocated to the space used by your tenants and the time they use it, would be deductible.
Deduction Allocated by Space
First, you can only deduct an expense such as Wi-Fi in proportion to the amount of the home that is rented. You can use any reasonable method to do this allocation. The most common method is based on the number of rooms in your home, or the square footage of your home.
Example 1: Jane rents a room in her house to a college student. The room is 10 × 20 feet, or 200 square feet. Her entire house has 1,200 square feet of floor space. Thus, one-sixth, or 16.67% of Jane's home is rented out. The maximum amount of her monthly Wi-Fi bill she can deduct is 16.67%.
Example 2: Instead of using the square footage of her house, Jane figures that her home has five rooms of about equal size, and she is renting out one of them. She determines that one-fifth, or 20%, of her home is being rented. The maximum amount of her monthly Wifi bill she can deduct is 20%.
As these examples show, you can often get a larger deduction by using the room method instead of the square footage of your home.
Deduction Allocated by Time
You must also allocate your deduction based on the amount of time the property served as a rental during the year, compared to the total time it was used during the year. You get no deduction for your expenses for days no one was renting your room.
Example: Jane lived in her home for 300 days during the year and rents it out for 65 days. The property was used as a rental 18% of the time (65 ÷ 365 = 18%). Thus, using a deduction based on the number of rooms (Example 2, above), Jane can deduct 18% of 20% of her total annual Wi-Fi bill. Thus, if Jane spent $800 on her Wi-Fi service during the year, she would be entitled to claim a deduction of $28.80 (20% x $800 x 18% = $28.80).
For more on the subject, see Tax Issues When Renting Your Home on Airbnb or VRBO.