05 Apr Is this Legal? What You Need to Know For Making Your Vacation Rental Legit
If you want to ensure the financial success of your vacation rental, that means knowing the laws, following the rules, and preparing for the financial hurdles associated with them. The HOST worked with New Orleans small business attorney Andrew Legrand to get the answers you need. Here are the four major issues he says you should be thinking about:
Most policies don’t cover short-term rentals. What constitutes a short-term rental? Any period shorter than 30 days. Get in touch with an insurance agent to develop a new plan or policy that will work for your burgeoning business.
Understand that your income taxes will change. When you rent out your home, the IRS considers you at least partially self-employed. Keep track of your business-related expenses, so that you’ll be able to make deductions. In addition, be prepared to pay self-employment taxes, which can be an unexpected hit to the wallet for homeowners new to the short-term rental market. If you’re overwhelmed by this process or just want to make sure you’re saving all you can, talk to a CPA or tax advisor.
Worried about how legal short-term rentals are in your city? Good for you! Check with your city’s Department of Safety and Permits. It’s important to treat your rental as a commercial business, like owning a hotel. Andrew says you may be able to find your city’s rules online. New Orleans, for example, has its own information guide specific to short-term rentals.
Not every city has the capacity or demand to make this information so readily available, so talk to a local licensing or zoning board, if you’re not sure where you stand.
In addition to income taxes, you should also consider that you’ll be paying city, county or parish, and state taxes, just like hotels do. Some rental platforms, like Airbnb, collect these taxes for you and remit them to the city and state. Other platforms, like VRBO, don’t. Take into consideration that once your renter pays you, you may end up needing to send 10% of that to local government.
When it comes to following the rules with short-term rentals, the repercussions of shirking the law are real. As of March 31, 2017, the city of New Orleans has received 696 license applications. The city has announced that the application submission payments will be used to enforce short-term rental regulations. Whether you would face fines, lawsuits, or the potential for the city to shut off your electricity, if you’re not complying, you will be losing money. The point of your rental is to make money, right? So, follow the law and consider how much you’ll be paying for taxes, insurance, and expenses when you make a financial plan. That way you can price your rental appropriately, and come out on top– smart, secure, and profitable.