What is a short-term vacation rental?
A short-term vacation rental is when an individual or family rents a private home, garage apartment or even a room for 30 days in a row (or less). Instead of staying in a hotel or other type of traditional lodging, many individuals, couples and families are opting for short-term vacation rentals as a unique alternative that feels more like a home away from home.
When it comes to short-term vacation rentals, there are a lot of possible scenarios. A property owner with more than one home may choose to rent one of these dwellings on a short-term basis. The renter gets to stay in a comfortable furnished home, and the homeowner receives extra income for homes they’re not using.
Another homeowner may rent their furnished guest house or garage apartment to individuals on a short-term basis. Garage apartments and guest houses are known as accessory dwellings. These options are appealing to some guests because their lodging is separate from the main house, which is occupied by the owner.
A third type of short-term vacation rental is when a homeowner decides to rent out a room in their primary house. Generally, the renter has access to a private bathroom and maybe even a kitchenette depending on the home’s design. The amount of access a renter has to the rest of the living space in the home is the decision of the property owner.
What is an occupancy tax?
An occupancy tax is paid by the homeowner whenever someone takes advantage of their short-term rental. The property owner factors the occupancy tax into the price of the short-term rental so the tax can be paid to the appropriate governmental entity (state, local or sometimes both).
The occupancy tax is often used by local or state governments to assist with tourism efforts in the area. A higher number of tourists benefits local restaurants, shops and other businesses as well as owners of short-term vacation rentals.
Are short-term rentals a concern for my community?
Of course there’s a risk with any endeavor, but with the right amount of planning and preparation, short-term vacation rentals can be a positive addition to your community.
Two neighbors in the same community may have two completely different opinions on short-term vacation rentals. One neighbor may live next to a home that is rented out several times each summer by people looking for short-term accommodations. That neighbor may describe the renters as quiet and respectful during their stay.
Another neighbor may report that the people renting the home next door on a short-term basis play loud music, leave trash in the driveway and make noise outside late at night. Short-term vacation rentals are relatively new in some areas, and the experiences can be mixed.
Short-term rentals that are closely monitored by homeowners have the potential to benefit a community. The people who rent homes, garage apartments or rooms on a short-term basis are spending money at local restaurants, visiting attractions and shopping at local stores. In this way, participating in the rental industry can improve a local economy.
Why regulate short-term rentals?
When the local government regulates short-term vacation rentals, it can head off a lot of issues. One of those issues relates to the number of homes available for sale in an area. With more homeowners renting out their dwellings, it can mean fewer reasonably priced homes available to buy.
Another issue has to do with the extra traffic created by an inordinate number of renters. This increase in cars and other vehicles can turn a quiet suburban neighborhood into a noisy collection of streets.
A third issue relates to the community itself. A large number of short-term vacation rentals can change the character of a community. Instead of having a gathering of neighbors who know one another, have children who attend school together and participate in local events, a town becomes more of a collection of people who come and go without joining the community.
Can local governments regulate/restrict short-term rentals within their jurisdiction?
The answer is generally yes. Most local governments do have a certain level of control over short-term rentals in their jurisdiction. The specifics included in local regulations vary, but they usually include the type of tax a homeowner must pay. Sometimes it’s referred to as an occupancy tax. It can also be called a transient occupancy tax or transient lodging tax.
Other local regulations cover license requirements, the number of units that can be rented and what type of advertising is allowed. The regulations also convey information on the fines a homeowner must pay if there is a violation.
Here is a brief rundown of some of the rules of taxes and tax deductions for vacation rental property owners as used by some jurisdictions:
The 14-Day Rule
Every property owner should know about the 14-day rule, which means a rental property is tax-exempt if the owner rents it out for no more than 14 days. The owner is also required to stay in the property for 14 days or more once per year. This rule goes for renting a room in your home, too. Chances are that most vacation rental property owners will go over the 14-day limit, and will thus owe taxes.
Tax Deductions for Rental Property Owners
There are also guest service fees that are charged to the guests if the property owner uses a rental management service, which is also tax-deductible. The property owner should receive a 1099 showing the rental income and the property manager’s fees that were associated with the property rentals. It’s important for vacation rental owners to keep receipts and records for every item that they’re planning to deduct, whether it’s for interior paint or new towels.
Even if a homeowner only rents a room in their home, they may be able to deduct a portion of their mortgage interest when paying the taxes for the room rental.
Is the regulation of short-term vacation rentals worthwhile?
Regulation is a necessary part of the rental industry. Reasonable regulation can help a community avoid issues that have the power to reduce the quality of life of its permanent residents. The existence of regulations can also make the experience of a short-term renter all the more enjoyable.
Yes, occupancy taxes benefit the local government, but the money can also be used to boost the appeal of the community as a whole. The extra revenue can be used to increase the presence of local law enforcement so if there’s an issue at a home occupied by short-term renters, it can be addressed right away.
Keeping up with what taxes are owed by which property owners in your municipality can be challenging, but GovOS simplifies the process and helps make vacation rental compliance much more achievable. Contact us today for a demo so you can see how GovOS can help you capture every rental.