Short-Term Rental of Personal Residence
Renting out your home through services like Airbnb or VBRO can be income tax-free, but consider the caveats.
There is an IRS provision which allows individuals to rent their personal residences for fewer than 15 days per year without reporting the income or expenses on their tax return. However, there are other practical considerations to take into account before deciding to rent out your spare bedroom:
- Q: Are there special laws or filing requirements for short-term rentals in my city/county?
A: Probably. Each city has their own laws for short-term rentals. In order to rent out your space, San Francisco requires you to first register as a business and pay a licensing tax, in addition to remitting transient occupancy tax (TOT).
A new issue that has surfaced recently is whether personal property tax can be levied on artwork, decorations, appliances, and other wares in homes that have been converted to short-term rental properties. The Board of Equalization is considering this issue.
New in 2016, San Francisco is requiring all businesses (including short-term rentals) which collect TOT to file Form 571-R, Business Apartment Statement, to report the assets used in the rental for the purpose of levying personal property tax. It should be pointed out, though, that the tax is relatively small (1.1826% in 2016 which would equate to $118 on $10,000 of assessed property value). The city estimated that an average one bedroom apartment would have $7,500 worth of taxable furnishings.
- Q: What if I rented my home for more than 14 days this year?
A: You are required to report the income and expenses on your Form 1040, Schedule E. For more information, see IRS Publication 527, Residential Rental Property, or feel free to call our office to discuss.
- Q: Do I need a special ‘rental’ homeowner’s insurance policy for my property?
A: Yes. Typically, homeowner’s policies don’t cover rental activities. Before renting, you will want to discuss obtaining a commercial insurance policy with your agent.
Short-term rental of your home can be a great opportunity to make some tax-free money. We recommend that you familiarize yourself with your local ordinances before making the decision to rent.
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