Short-Term Rental Property

SHORT-TERM RENTAL PROPERTIES: U.S. TAX ISSUES

WHAT ARE THE TAX ISSUES RELATED TO SHORT-TERM RENTALS?

Written by Steven Miller, CPA       July 24, 2018

MEANING OF SHORT-TERM RENTAL PROPERTIES

         

  • AirBNB                                   
  • VRBO
  • Tripping.com
  • FlipKey
  • HomeAway
  • HouseTrip
  • VayStays
  • VacayHero
  • Wimdu
  • Luxury Retreats

PARADIGM SHIFT AND TAX RAMIFICATIONS        

The vacation rental booking industry has grown rapidly.  Travelers' choices abound.  But, let's consider the property owner's perspective. 

Real estate investors traditionally purchased single and multi-family homes for longer term leases of six months or more.  The investor's focus was on positive cash flow and long-term property appreciation.

With the growing popularity of the vacation rental market and numerous providers, many investors are getting into this market segment. Most have not stopped to consider the tax ramifications of such an investment. Typically they assume it works the same way as long-term property rentals. They would be wrong.

And, what about the non-U.S. (foreign) owner of U.S. real estate?  Such owners may profit handsomely from these investments but there are many added complications to consider. 

This is a brief list of many of the issues an investor should consider.  It is highly recommended you develop a strategy and plan of action before  investing in such ventures. 

If you have not already done so, take action now to address the issues you have not previously considered.

DECISION POINTS TO CONSIDER AND SEEK EXPERT GUIDANCE WITH

  • Do you choose cash or accrual basis of accounting?
  • Domestic or foreign ownership of the property?
  • Will you need the IRS election re: Effectively Connected Income?
  • Will you have personal use of the property for more or less than 15 days?
  • What tax forms you will receive?
  • Do you expect positive cash flow?
  • Are short-term rentals treated differently than long-term rentals?
  • Will I have to collect and pay hotel taxes?
  • What expenses you may deduct against your income?
  • Tax elections for repair expenses or capitalize?
  • Capitalize or expense assets?
  • What travel expenses may I deduct?
  • Are you renting only part of the property? How do I allocate?
  • Will I need to pro-rate my expenses for the rental?
  • Are there issues with renting to family members?
  • If I sell the property later, what are the tax implications?


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