Vacation Rental Property Rules and Regulations for Owners
Whether you have one property or many to list on a vacation rental site, you’ll need to have some of your important questions answered first. For example, you may have wondered:
- Do I need a business license to rent a property?
- How much in taxes would I pay for my Airbnb income?
- What are the rules and regulations that short-term vacation rental owners should be aware of?
In this article, we will cover all of this. You’ll learn vacation rental business license requirements, vacation rental tax rules, and short-term rental regulations for individual vacation property owners, as well as for vacation property franchise owners.
Are you ready for more information and to get your questions answered? Let’s get started.
| You are reading an article from the How to Start section of our Ultimate Vacation Rental Business Guide.
See the other articles in this section below: • How To Start a Vacation Rental Business • Vacation Rental Property Business Plan ➜ Rules and Regulation for vacation rental property |
Vacation Rental Business License
Obtaining a vacation rental business license (or short-term rental permit) is a necessary piece of the renting puzzle. It shouldn’t be skipped, because the city, county, and state laws are very strict about this requirement. Having this permit in hand will allow you to legally rent a property for less than 30 days at a time.
Do You Need a Business License for Airbnb?
Airbnb likes to advertise how much money you can potentially make, but they don’t include all the necessary details in those ads. Do you definitely need a business license to rent a property? The answer isn’t always yes, but many cities or counties do require a business license for Airbnb, as well as other vacation rental properties.
There are four things to consider and address when applying for a vacation rental business license:
- The city or neighborhood of the rental may have zoning restrictions applied to it. These are sometimes put into place to limit the number of rentals in a given area. This is to help mitigate noise, trash, parking, and other issues that sometimes arise in high rental areas.
- Maximum occupancy laws may control how many guests are allowed to occupy a property at the same time. These laws are often determined by water, fire, and septic codes.
- The address of the rental property determines which jurisdiction you should apply to, but this can be tricky to determine. Even if the physical address of the home is for a certain city, it’s possible that the property is actually in an unincorporated area. If this is the case, you may need to apply for and purchase multiple business licenses.
- Many states require a property inspection before granting a permit. A certified building inspector will evaluate the integrity of the building’s structure, local safety requirements, and the availability of emergency response personnel.
These four things are good reasons why you should always contact the city planning and zoning department before applying for a short-term rental permit. And remember, some licenses expire after a set period of time, so keep track of when you need to renew (which is easier than applying for a new license).
Tax Rules for Vacation Rental Property
The tax rules for vacation rental property owners are as vast as they are comprehensive. But to get you started, here are some basics regarding vacation rental tax laws that apply to the rental property as well as for rental income and expenses.
Tax for Property
Your property is considered a business and taxed accordingly if you use your vacation home personally for either:
- 14 days or fewer in a year
- Less than 10% of the days it’s rented out
If you use it more than that for personal reasons, you’ll need to divide expenses for tax purposes.
Tax for Income and Expenses
For each year of business operations, you will need to report all your gross income and deduct all your out-of-pocket expenses (this deduction recovers some of your tax costs).
The amount you pay for Airbnb income (or any rental income) if you rent out a property for more than 14 days in a year, before deductions, depends on which of the seven marginal tax brackets you fall into, which range from 10 to 37 percent. That’s because rental income is taxed as ordinary income.
The following types of income are to be reported:
- Advance rent
- Security deposits (that aren’t returned)
- Lease cancellation fees
The following types of expenses may be deducted to reduce the amount of taxes owed:
- Utilities
- Cleaning, maintenance, and repairs
- Improvements
- This can include adding things such as a bathroom, sprinkler system, security system, central air conditioning, soft water system, built-in appliances, attic insulation, and more
- Personal use of rental property
- Marketing
- Auto and travel expenses
- Insurance
- Interest
- Legal and other professional fees
- Management fees
- HOA dues
- Taxes
- Losses
There are additional tax rules for vacation rental property if:
- It is part of a multi-unit building
- It is part of a cooperative
- Only part of the property is being rented
- You have personal use of it
IRS Publication 527
The IRS provides more details on these tax laws that pertain to the rental of vacation homes in the IRS Publication 527. Also included is how to get tax help and the tables and worksheets you need when filing. However, while the IRS tries to break down the information into understandable language and steps, it’s always best to consult a tax professional when starting a new business and setting up an accounting system.
State Taxes
In addition to federal taxes, your property and income have vacation rental tax rules that apply and vary according to the state in which the property is located. Some states collect sales tax, and/or occupancy taxes on vacation rentals as well. Be sure to do your research with your state’s tax commission to ensure you report properly.
Short-Term Rental Regulations
There are a variety of short-term rental regulations that should be taken into account when hosting guests. They include building rules, neighborhood/community statutes, and city regulations. Make sure to do due diligence in following them and notifying your guests of them.
- Building Rules: These are most likely to apply if you’re renting a unit in an apartment building or condo. Are there any common room rules such as the need to keep the doors locked? Are there any quiet hours to know about? Is smoking allowed? Where can guests park? Can guests bring pets?
- Neighborhood/Community Statutes: Check the HOA or Co-Op Board for statutes regarding renting or subletting properties (such as a limit on the number of rentals in the neighborhood). Read your lease agreement if you have one. Speak with the neighbors and let them in on your plan to host and how you will ensure guests are respectful of the communal property and not disruptive of other owners.
- Airbnb Rules for Owners: Some cities have short-term rental rules that restrict the ability to host paying guests. These Airbnb rules for owners of short-term properties are often part of city zoning or administrative codes and include the need to register or get a permit. To find Airbnb rules for owners in your city, check out local regulations.
Short-Term Rental Regulations for Rental Franchises
If you’re wondering if the short-term rental regulations and tax requirements are the same for vacation rental franchise owners as they are for owners of a single property, the answer is yes. The only difference is that a few states require franchise owners to obtain a real estate broker’s license in addition to the other business permits.
Conclusion
Vacation rental property rules and regulations, licenses, and taxes are an inevitable part of being a small business owner. While it can sound complicated, having the right people on your side can help tremendously. A lawyer will deal with the legal issues, an accountant will handle the finances, a property manager will take care of the maintenance and upkeep, and a property listing firm will take care of all the rest.
With a proven operational model, powerful technology, and ongoing training and support, Grand Welcome will help you successfully expand into one of the fastest-growing segments in the travel industry.
List your vacation rental property with Grand Welcome or request information about owning your own vacation rental franchise!