Renting short-term is a business transaction that may be subject to various laws, rules, and regulations. For both rentals and exchanges, you may need to make changes in your homeowner’s insurance.
I’ve summarized some key issues below. Please remember that I’m not an attorney or a tax accountant, so you’ll need to check everything out for yourself. You can find a lot of information online – just make sure it’s accurate and up to date. If you’re unsure, get professional advice.
Learn About the Law
When you rent out your home, even for a few days or weeks, you become a landlord, subject to the Federal, state, and local laws and regulations that apply to rentals. Here’s a snapshot:
Fair housing laws. To put it simply, you must treat all applicants equally under the law, which means you cannot discriminate on the basis of race, ethnicity, sex, religion, national origin, disability, and other criteria. With some exceptions, you are also not allowed to refuse tenants with children or discriminate on the basis of age.
Use taxes. An increasing number of cities have begun to tax rentals of less than 30 days, and some are trying to prohibit them altogether. Learn about the local laws and regulations that apply to you.
Safety regulations. Your city or town may have regulations relating to safety, such as having sprinkler systems, fire extinguishers, and smoke and carbon monoxide detectors (not a bad idea in any case). Be sure you know what those regulations are.
Check Your Insurance Policy
Most insurance companies prefer that a home be occupied at all times, so your current policy may be just fine, at least for home exchanges, as long as your liability limits are high enough in case someone slips on the stairs. But you may need a separate rider to cover people who stay in your home while you are not there, and it’s possible that your policy won’t cover renters. Some home exchange and rental sites now offer free or low-cost insurance that might help to pay for what your own policy does not cover.
Find Out What the Tax Hit Might Be
I’m reasonably sure there are tax consequences if you rent out your home for more than 14 days in a given year. But I’m not a CPA, and everyone’s tax situation is different, so you’ll need to talk to a professional.
Here’s what we do: Following our tax adviser’s advice, we report our short-term rental income on our tax return. We also deduct certain expenses, such as a prorated share of the mortgage, property taxes, utilities, property insurance, and depreciation, as well as advertising and other direct costs. We keep careful records and hand them over to our tax adviser at the end of the year so he can figure out what, if any, deductions we can take.
What’s Next: Decide when (and where) you want to travel