I lease out my TWH to a lady for $350 per month. I’ve been doing it since February 2022. She pays me through Venmo.
Since tax season will come upon us pretty soon, I need some advice. Do I have to pay taxes (such as income taxes) on the Venmo money I receive from the lessee every month?
I live in Southern California.
Thank you!!
Is $350 a month your only expenses on this horse? I would think any expenses on this horse you incur would bring the net income down to zero or possibly even a hobby loss. I am not a tax expert although a CPA. I could sure negate any revenue one of my horses brought in. Unfortunately they do not bring in any sort of revenue just expenses.
I will offer some general income tax advice here. Without knowing your specific tax situation…this should not be construed as tax advice.
Generally, you should be claiming any revenue for the purpose of income tax. You can use reasonable** repeat reasonable expenses to reduce the amount of net income on that revenue. In the case of a leased horse, I would at least include any equine insurance you carry for the TWH and routine vet bills. If you file this on a schedule C, you may qualify for the 20% qualified business income deduction. This gives you a 20% deduction on your business income.
Now…the IRS hates financing hobbies. If you get any repeat any use of the horse you need to prorate any expenses. Say your lease says you have use of the horse 3.5 days a week, you can only use 50% of the equine insurance expense against your lease income. In your instance, I would avoid expenses like non-routine vet bills, expensive farrier or bodywork, or your board bill. That is just screaming for an IRS audit. If you were leasing a high dollar show hunter? I would consider some of those expenses…but not all.
Regarding Venmo: one of the recent tax law changes (I have forgotten which one) required that companies such as Venmo, Paypal and Zelle send you (and the IRS!) a 1099K if your annual transactions are over $600 (formerly it was $200K or 20K transactions, I think). This means that Venmo WOULD be reporting your lease income. In recent weeks, the IRS has backed off of the $600/1099K requirement for this year. It was going to create a lot of headaches for people who were reimbursed for lunches, had a yard sale, etc. Keep an eye out on that if she continues to use Venmo in 2022.
this is not personal tax advice
ETA: @#$% it’s 2023 now! Keep an eye on legislation for 2023 RE: Venmo.
@Displaced_Yankee nailed it. I have sale horses who are very, very separate from my personal horse (who happens to be half-leased out) but what they described is pretty much exactly how I handle the income from the leased horse, since I too still ride him. In his case, he’s a pretty valuable jumper so I am a little more flexible in what expenses I consider, but as they said, still much different than my sale horses who move in and out of the barn quite quickly.
I am not a tax person.
The bottom line is yes you are supposed to report it as income.
Most people probably don’t.
You can’t deduct hobby expenses anymore so any expenses related to your use of him you can’t deduct.
Also note the Venmo rule is only for transactions classified as paying a business. Transactions classified as personal wouldn’t be reported.
Re hobby expenses - I just looked into this for a personal situation, and you are 100% correct, even if not a tax person! I saw something in my search process that this may change in 2025, when the current restriction expires. But that’s a ways away…
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