The last thing you want to worry about in planning a vacation is running afoul of the law. Unfortunately, no single set of rules applies to all short-term rentals. The federal government expects to collect any applicable taxes, but other than that, laws governing short-term rentals and house-swaps are enforced locally. For this reason, it’s important to research any state and city laws that may apply to you. Be particularly aware of local prohibitions against short-term home rentals, state and city fair housing laws, taxes, and insurance requirements. Airbnb keeps lists of regulations in several dozen of its top U.S. markets on its website.
With so much buzz surrounding sites like Airbnb and VRBO in the last few years, there’s a good chance one of your local publications has covered the issue recently. Search the web for resources pertaining to your city or town, and if you have any questions or concerns, consult a lawyer.
Short-Term Rental Bans
In some cities and states, there are outright prohibitions against renting your home on a short-term basis. For example, New York has laws barring the rental of any apartment for a less than 30 days, and any rentals lasting longer than a month are subject to a host of strict regulations written for full-time landlords. As a result, the New York State Attorney General estimates that more than 70 percent of Airbnb listings in New York are illegal.
Though such prohibitions are rare and generally considered a low priority, it’s important to find out if similar regulations exist where you live.
Fair Housing Laws
Though few temporary rentals by homeowners are subject to the Federal Fair Housing Act, nearly every state has its own laws governing what considerations can factor into your decisions about who you do and do not rent to. Many cities also have their own protections that go even further.
It’s important to familiarize yourself with local housing discrimination laws, many of which include the following protections:
Source of Income
Each city and state is different, but these laws shouldn’t be too hard to navigate once you find them. Examples of language you might use in a listing that could run afoul of fair housing protections might include:
“No immigrants,” “Russian family seeks,” “Hispanic neighborhood”
“No wheelchairs or walkers,” “no pets, even service animals”
“Not suitable for children,” “single occupancy only,” “perfect for a young couple”
“Quiet, mature neighborhood,” “seeking Christian family”
If your intention is just to alert some renters that your home might not be suited to all of their needs, use descriptive language that will allow your readers to make those determinations themselves.
For more, see the Nolo website.
If you’re going to have somebody else living in your home while you’re away, it’s important to know whether your arrangement falls under protection of your insurance policy. Whether a guest gets injured in your home or does significant accidental damage to it while you’re away, chances are you won’t be fully protected by the company you used to book the stay.
Thankfully, many homeowners’ and renters’ insurance policies already include protection from personally injury lawsuits resulting from short-term rentals. Some do not. It’s a very good idea to find out whether your insurer protects you before you rent or swap your home. Contact your insurance company and ask them about their short-term rental coverage. (For extra protection, send them an email confirming the details that they relayed to you in case there’s a misunderstanding later on.)
In some cases you may need to add supplemental coverage to your homeowners’ or renters’ policy. It’s relatively inexpensive and well worth the cost if you plan on renting out your home out frequently.
The Nolo website has a good discussion of insurance issues relating to short-term rentals.
If you rent your home for more than 14 days in a given year you must report your rental income to the IRS. Many short-term rental websites now automatically submit 1099 forms reporting your rental income to the IRS. Additionally, some states and cities impose lodging taxes on short-term rentals, just as they would a hotel. Airbnb now even collects and pays those taxes as part of your user fees in some markets. Contact customer service to find out if this is the case in your city and ask your tax professional to inform you of any additional taxes your may owe.
While you’re at it, you also may want to ask that tax professional about deductions you might be able to make as a result of the rental. Did you incur any: cleaning or maintenance expenses; internet and utility payments; home improvement investments; or insurance premium costs as a result of renting your home? Those may all be tax deductible.
To learn more, see IRS Publication 527 and “Tax Rules on Renting Your Vacation Home” on Bankrate.com.