I have an acquaintance who welcomes short-term guests into her beautiful hilltop home while she and her husband visit their daughter in a country house outside Lyon, France. They’ve done this several months a year for at least a decade, and they’ve always had great guests.
But three years ago our acquaintances returned home to find that their huge, expensive, newly installed front door had been almost completely destroyed. “It looked as if someone had taken an ax to it,” she said. “And guess what? Our insurance company denied our claim. They said we’re operating a business.”
That was a wakeup call! We’d simply assumed that our homeowner’s insurance would cover us if something happened while guests were living in our home. But what if it didn’t? What if someone stole our computers and TV? Trashed the house? Or worse, fell down the stairs?
We realized that we’d been very nonchalant about the short-term rental process. We knew enough to declare the rental income on our tax returns, but we’d never bothered to educate ourselves about insurance, or short-term rental laws, or other taxes we might be subject to. It was about time we did.
Read on to see what we learned about short-term rental insurance, laws, and taxes.
Check Your Insurance Policy
In a 2015 New York Times article, “Death in Airbnb Rental Raises Liability Questions,” author Ron Lieber explained that “…most [AirBnb hosts] probably assumed that their homeowner’s insurance would offer coverage if a guest was hurt or worse. But most homeowner’s insurance policies have an explicit exclusion for commercial activity.”
When I finally checked with our insurance company, I was relieved to find that our policy would protect us from personal injury lawsuits and fire damage resulting from short-term rentals, although the company might not pay claims for tenant-caused damage. But many homeowners’ policies do not, or they include exclusions that leave big holes in your coverage.
To avoid nasty – and costly – surprises, contact your insurance company, explain what you plan to do, ask whether you’ll be covered, and ask about exclusions. For extra protection, send your agent an email confirming the details in case there’s a misunderstanding later on.
If your insurance company balks, you’ll need to find a company that does cover you when guests are living in your home without you being there yourself. Some such companies now exist, and as more and more people join the ranks of short-term rental hosts, others are reconsidering their policy exclusions.
At least one listing site, Airbnb, provides some coverage, but I’m not sure how extensive it is. Your own company might let you buy a supplement to your policy or you might be able to purchase supplemental insurance elsewhere. It might be worth the cost just for your peace of mind. There are also some new companies, such as Slice, that offer on-demand insurance designed specifically for short-term rentals.
For more: see the Nolo article, “Insurance Questions When Renting Out Your Home Short-Term.”
Learn Whether Your Short-term Rental is Legal
- Late 2016: New York made it illegal to rent out – even to advertise – a short-term rental of less than 30 days in a multi-unit building. Violators risk heavy fines: $1,000 for the first violation, $5,000 for the second, and $7,500 for the third.
- March 2016: Miami Beach increased fines for illegal short-term rentals to $20,000 – and that’s just for the first offense. By November, the city had levied fines totaling $4 million on 145 hosts who were illegally renting to short-term tenants.
- The City of Santa Monica: Requires that short-term rental hosts register for licenses as businesses and pay a 14% hotel tax. By March 2016, the city had collected more than $40,000 in fines for illegal rentals.
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 IRS expects you to fork over applicable taxes on the income (see below), but laws and regulations governing short-term rentals and house-swaps are enforced locally. To complicate matters, many jurisdictions are still struggling with how to regulate short-term rentals – or whether to allow them at all.
To avoid what could be very stiff fines, educate yourself about any local or state laws that might apply to you. You might need to register your home as a short-term rental and pay a local tax. Or you might be limited in the number of days you can rent out your home each year.
You should be able to find any regulations online, and with so much buzz surrounding short-term and vacation rentals in the last few years, there’s a good chance your local publications have covered the issue. If you have any questions or concerns, consult a lawyer.
See the Nolo article, “Legal Restrictions to Renting Your Home on Airbnb or Other Rental Services,” for more.
In 2015, Harvard experimenters found significant discrimination by AirBnB hosts with African-American sounding names. A New York Times article about their report pointed out that while hotels are prohibited from refusing to rent to guests on the basis of their race, ethnicity, and other factors, Airbnb users have little recourse if a host refuses to rent to them.
Most of us are pretty law-abiding. We obey traffic regulations. We pay our taxes. We don’t steal or commit assaults. Yet many otherwise law-abiding people run afoul of fair housing laws when they rent out their homes.
Federal fair housing laws make it illegal to discriminate on the basis of race, gender, religion, national origin, sexual orientation, familial status, disability, age, and source of income. Your local and/or state laws might include further categories.
The wording in a rental listing or advertisement is the first indication of intent to discriminate. For example:
- “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 only to alert some renters that your home might not be suited to their needs or might not be a good fit for them, use descriptive language that will allow your readers to make those determinations themselves:
- “Bedroom is reached by a somewhat steep flight of stairs.”
- “We live in a seniors-only community so we cannot accept children under the age of 16.”
- “Our swimming pool is unfenced.”
It’s not really clear the extent to which hosts renting out their private homes for a few weeks are subject to Federal laws and to local housing laws and regulations that may go even further. But that doesn’t mean you should seek people only from certain groups or with certain characteristics, or turn people away because they don’t fit those criteria.
Instead, base your selection of tenants on whether you think they’ll pay the rent, take good care of your home, and respect your neighbors. Whether or not your short-term rental is subject to fair housing laws, it’s wrong to discriminate. Period.
For more, see the Nolo article, “Does the Federal Fair Housing Act Apply to Your Rental Property?”
Pay Your Taxes!
If you’re already a short-term rental host, you probably know that if you rent out your home for more than 14 days in a given year, you must report the income to the IRS. That’s pretty straightforward, and you can find the details on the IRS website.
What you might not know is that you might also be required to collect “lodging” taxes and/or sales taxes on your short-term rental, just as hotels must do. It can take some research to find out (1) what taxes apply to your rental, (2) what the tax rate or rates are, and (3) when the taxes are due.
In some markets, Airbnb now collects and pays certain taxes as part of hosts’ user fees. But your short-term rentals might be subject to multiple taxes and fees, depending on where you live and the length of your rentals. Check with your local and state tax authorities, or ask your tax professional what taxes you need to pay.
While you’re at it, learn 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? Keep careful records, and ask your tax professional what deductions you can take.
We’d like to know about your experiences with the topics covered in this post: short-term rental insurance, laws and taxes. What tips would you give someone who is just starting out as a short-term rental host?