Airbnb – Limitations, Restrictions and Tax Implications
While a catalyst for entrepreneurship, Airbnb creates challenges to the hotel industry and local governments. For example, local areas have passed laws that are contrary to the way that Airbnb operates. These laws stipulate the type of properties that cannot be rented out. Also, in many cases, the laws contain clauses that may limit or prohibit the renting of property for a short-term stay. It is important to be aware of numerous legal or contractual restrictions and tax consequences.
Local Regulations
The business model for Airbnb is not suitable for the tough laws of many cities, counties and other municipalities. For instance, the NYS Multiple Dwelling Law prohibits short-term rentals of 30 days or less in Class A multiple dwelling buildings with three or more families that live independently. If a rental is desired for less than 30 days, the permanent resident would have to be present and share all areas of the apartment with the visitor.
Permits and Licensing
In some states or cities, it may be mandatory to register or obtain a license before listing property on the Airbnb platform. The Airbnb website states: “Ensure you look up any permitting, zoning, safety, and health regulations that may apply.” Hosts should be fully aware of the current laws before accepting outside guests.
Zoning
Hosts should know the local zoning laws before becoming a host and renting an apartment. For example, the New York City Zoning Code states regulations on zoning that may prohibit a host’s listing.
Rent Control and Rent Stabilization Laws
Airbnb warns: “If you live in rent controlled or stabilized housing, there may be special rules that apply to you. Contact your local rent board to ask questions about this topic.”
Contractual Limitations in Leases
A lease might contain clauses to prevent unauthorized short-term rentals. Therefore, tenants can be taken to court for an eviction if they violate the terms of their lease.
Condominium and Co-op Rules
Some condos and co-ops have strict rules against short-term rentals. Some boards will aggressively enforce the rules within their buildings.
Tax-free Rentals
Airbnb hosts can rent out their personal residence, for any price, for up to 14 days during the year and the income would be free of income taxes. But, the permanent resident would have to live in the home for more than 14 days. Expenses that are associated with renting a home for up to 14 days cannot be deducted on the host’s income taxes.
Tax Implications for Rentals of More than 14 Days Annually
Income from rentals that exceed 14 days must be reported. Additionally, related expenses may be deducted from rentals that exceed 14 days. If the host’s personal use of the home exceeds the greater of a) 14 days or b) 10% of total rental days, then the property would be considered a residence and the host will not be allowed to deduct a loss from related rental activities. However, if the host rents a second home and the personal use of the rented home doesn’t exceed the greater of a) 14 days or b) 10% of total rental days, then the property qualifies as rental property and any rental loss may be deductible, subject to other provisions of the Internal Revenue Code.
State and Local Taxes
Hosts should be familiar with the tax structure for their community. For instance, NYC imposes various taxes on hotels such as NYC hotel room occupancy tax, NYS sales tax, NYC sales tax, and a NYS hotel unit fee daily tax. New York City’s Department of Finance clarified that Airbnb is not required to collect and remit taxes. Hosts should keep in mind that they might be responsible for collecting taxes for all rental units.
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Alicia Mynarska, CPA 212-751-9100 [email protected]
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To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
