Vacation rental businesses have been a viable source of income for homeowners for decades. From greater flexibility to higher profits and turnover, there are plenty of advantages to managing short-term rentals.

As they’ve grown up into a respected industry of their own, however, owners are beginning to face an increasing number of restrictions when it comes to the properties they manage.

Often prompted by objections from neighbors and big players in the hotel industry, many cities have been left with no other option than to roll out strict regulations for short-term renting. In many cases, owners and managers may be slapped with huge fines if they are not compliant. Penalties in the city of Miami, for example, are upwards of $20,000 – and that’s just the first violation.

As players in an industry that’s constantly evolving, growing and adapting to new trends and technologies, property owners must also understand (and abide by) the legal stuff in their destination.

While the rules and regulations will ultimately vary from one place to another, here are four frequently asked questions that concern property owners and managers in the short-term rental sphere.

What does “short-term rental” mean?

While it is commonplace to think that the definition of a short-term rental is simply, renting out a property for a short period, the real definition is more complex and can differ based on two central components:

Type of structure

Even though in one city or state, a short-term rental might be defined in the “Airbnb way” as a shared room, private room or an entire property, in another state, there may be a minimum number of bedrooms the property has to have before it will be considered as a short-term rental.

Check what the definition is for your local area on your city or county website, as this will impact both how you rent your home and the types of permits and licenses you require.

Length of stay

Similarly, depending on regional restrictions, how long guests can stay at your property plays a key role in clarifying whether it is a short-term rental (or not).

Some cities limit the length of stay up to 30 days, others prohibit the rental of properties for any less than that. Therefore, always read up on the rules where you are looking to set up your rental business, before making any big commitments.

What legal restrictions exist for vacation rentals?

Besides defining a short-term rental in terms of its structure and length of stay, there are other legal restrictions which vacation rental owners will need to consider. These again will likely change subject to location, but common legal restrictions include:

Prohibition of short-term rentals

In some cities, short-term rentals are not legal in any shape or form. In other cities, there may be restrictions on certain zones or areas where you can and cannot run a vacation rental.

Limit on the number of vacation rentals in a location

Bigger cities and key tourist destinations often have stricter rules when it comes to how many vacation rentals can operate in any given part of the city.

Multiple dwelling laws

In cities such as New York, where the Airbnb effect has been said to push up rent costs for local residents, there are laws in place – such as the Multiple Dwelling Law – which only permits rentals of fewer than 30 days in buildings which house more than three families (living independently) and if a permanent resident is present. Failure to abide by this law can result in a penalty of up to $2,500 per day!

It’s therefore essential to read up on all legal requirements and restrictions for your city or state if you are hoping to turn your property into a vacation rental.

What licenses and permits are required to run a vacation rental?

As a vacation rental owner or manager, you may need to secure the following licenses before you can operate:

General business license

Your city or county will probably require a general business license or permit for any business – including a short-term rental.

Short-term rental license

Given the legal restrictions listed above, it’s more than likely you will need a license or permit for short-term renting. Typically, your application will ensure your property meets property health and safety requirements, it’s compliant with zoning restrictions and that neighboring properties have received notification.

You may also have to provide proof that the property you are renting is not your primary residence.

License and permit requirements should be available on your local government website.

How do taxes work for short-term vacation rentals?

Taxes are an inevitable part of running any business. In many cases, besides income and self-employment taxes, local governments will establish a short-term rental tax. This may take the name of lodging or hotel tax.

That said, there are often a number of deductible expenses that vacation rental owners can take into consideration when filling out a tax return. It’s important to keep copies of all rented periods for the year, and bills for any regular expenses incurred such as insurance, repairs, cleaning, utilities and marketing.

What to take away

Just as the vacation rental market itself is growing and changing all the time, so are the laws that keep it in order. An increasing number of cities are cracking down and taking measures to protect neighborhoods, residents and visitors alike.

In many cases, local lawmakers are working with property managers in a bid to avoid banning vacation rentals altogether. This aims to bring more structure to the table with clear rules for each property owner to adhere to.

The best thing to do is frequently check your location’s laws and requirements to stay up-to-date with the latest news and regulations.

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Laws, Licenses and Taxes: An Overview for Short-Term Rentals
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