By Rob Stephens
“Short-term rentals, often called vacation rentals, have exploded onto the travel scene, becoming hugely popular with homeowners and travelers alike. With the help of technology, it is incredibly simple for a property owner to broadcast their rental across the world.
Millions of people in the U.S. are currently renting their homes or apartments on Web sites such as HomeAway, VRBO and Airbnb. With this level of activity, it is vital that accountants and tax professionals have an understanding of property rentals and income tax implications. Though sometimes overlooked, sales and lodging taxes are an entire class of taxes that expose clients to a significant liability.
A significant liability
Short-term rental property owners are required to collect and remit sales and lodging taxes on the gross rent collected from guests – the same taxes a hotel is required to collect. Short-term in most states is less than 30 days, but there are a handful of states that have 90-day definitions and a few, such as the popular travel states of Hawaii and Florida, where short-term is defined as up to six months.
The property owner or host is required to collect lodging taxes from the guest on any short-term stays. These taxes are typically 10 percent to 15 percent of the gross rent collected – overnight accommodations are heavily taxed. Sales and lodging taxes are a type of gross receipts tax and there are no deductions.
The average short-term rental will generate $20,000 to $30,000 per year in rent, thus amounting to $2,000 to $5,000 in sales and lodging taxes that must be collected and paid. This is a significant liability if your client is not compliant, especially if they are audited for three to five years of history. These lodging taxes can build into a huge hidden liability for unsuspecting or unknowing clients renting their primary or second homes.”