Vacation Rental Insurance, Laws and Taxes
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, most of that time without specific vacation rental insurance. They’ve always had great tenants. But three years ago, they 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 staying in our home as part of our vacation rental business. But what if they wouldn’t? What if someone stole our computers and TV? Trashed the house? Or worse, slipped on 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 vacation rental 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.
Check Your Insurance Policy
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 or vacation rentals, although the company might not pay claims for tenant-caused damage. But many homeowners’ insurance policies do not, or they have 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 currently 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 vacation rental insurance elsewhere. It might be worth the cost just for your peace of mind.
Find Out Whether Your Vacation Rental is Legal
In New York, it is not legal to host or 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.
Many cities across Canada and the US have implemented similar rules and regulations.
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 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.
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 just wrong to discriminate. Period.
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.
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: vacation rental insurance, laws and regulations, discrimination, and taxes. What tips would you give someone who is just starting out as a short-term rental host?
Thanks to Janis Fisher Chan for submitting this article.