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Short-term rental business opportunities such as Airbnb, HomeAway and VRBO are a great way for homeowners to earn money. Whether you’re looking to subsidize your income or defray the costs of owning a second home or vacation property, it’s a hot market. According to Research and Markets, the global vacation rental market will register a Compound Annual Growth Rate (CAGR) of close to 7% (an incremental growth of an estimated $57.1 billion) by 2022.
But as short-term rentals have grown beyond a cottage industry, regulators are starting to play catch-up. Spurred by complaints from neighboring residents and the traditional hotel industry, cities have enacted laws to regulate short-term rentals across the nation. The fines for non-compliance can be substantial. In Miami Beach, FL, fines for a first violation start at $20,000.
With such costly and ever-evolving regulatory dynamics, it’s important that property owners understand the legal considerations for short-term rentals. Below are the answers to five commonly asked questions about the laws and regulations that govern short-term rental businesses.
Sounds straightforward, right? You rent a room or your entire property to a guest for a short period of time. However, it’s not quite that simple. The definition of a short-term rental can vary based on several key factors:
In addition to regulating the type of structure and length of stay, there are several other legal restrictions to which short-stay rental businesses are subject. Again, these vary by city, county and state.
Here are just some of the common restrictions:
Be sure to check the laws in your city or state, which are subject to change. If you intend to rent condo or co-op space, consult your association rules to see if anything limits your ability to rent space as well as HOA bylaws or timeshare ownership rules. If you rent your property from a landlord, be sure to get their okay too.
Here’s a checklist of what licenses or permits you may need to obtain:
Check your local government website for details or refer to the “Getting Started” information through your online rental company (Airbnb, VRBO, etc.) for license and permit requirements in your area.
We’ve mentioned zoning laws already. Don’t skip this important step in your business planning. If your property is not zoned for short-term rentals, your options are very limited. Don’t take the risk. All it takes is a complaint from a disgruntled neighbor to trigger a cease and desist notice from the zoning department.
Taxes are a critical part of regulatory compliance. In addition to paying income tax and self-employment taxes, some local governments impose a short-term rental occupancy tax (lodging or hotel tax). It’s a good idea to consult your tax advisor to see which tax deductions you can claim. For example, the IRS lets you claim rental expenses for property and rooms rented (such as rental fees charged by short-term rental companies) if you meet certain criteria. It's important to keep thorough records of all rental periods and any expenses incurred throughout the year.
The laws and regulations that govern the short-term rental market are constantly changing. As demand remains high, more and more cities and vacation destinations will continue to take steps to protect residential neighborhoods and guests alike.
For now, check your city’s ordinances and state laws before getting started and revisit them often as regulations can change at any time.
CT is dedicated to helping your business be compliant. For more information check out our Business License page or contact us today. at (855) 316-8948.
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