Short-Term Rental Laws: Local, State & Federal Regulations on Airbnb Investment Properties

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Vacation Rental Laws by State

Short-term rental laws vary significantly from state to state. If you want to make money through Airbnb investments and vacation properties, you must understand short-term rental regulations before investing.

This blog post will explore what short-term rental laws mean for residential real estate investors and help you adjust your operating expenses accordingly. Planning for vacation rental laws means planning for profits. Here’s what you need to know.

For informational purposes only. Always consult with an attorney, tax, or financial advisor before proceeding with any real estate transaction.

Overview of Short-Term Rental Laws

A short-term rental is a residential property rented out for less than 30 days. Most short-term rentals are fully furnished and include kitchens, washing machines, and other amenities. Often, the owner will rent out all or part of their primary residence. Others will purchase a home, condo, or accessory dwelling unit with the intention of operating it as an income property.

Most regulations are enforced at the state or local level. However, proposed Federal legislation could help ensure compliance with rental laws. Known as the “Protecting Local Authority and Neighborhoods Act,” this bill would prevent vacation rental listing platforms from profiting off illegal rentals.

The best way to maximize the profits of your vacation rental is by maintaining compliance with laws at all levels. Any investor who wants to be successful in the vacation rental industry needs to stay in the know about any changes to the law.

Common Vacation Rental Laws

Real estate investors should be aware of local regulations when considering investing in short-term rentals. Laws governing these properties vary from city to city and state to state. Depending on where you invest, you must adhere to the various local regulations, including the following:

  • Licensing requirements
  • Taxation rules
  • Zoning restrictions
  • Occupancy limits
  • Insurance requirements
  • Safety standards

Following local regulations means staying informed about changes and updating as necessary. If you do not, enforcement measures, such as penalties and court appearances, could be levied against you. You can protect yourself from these headaches by being as knowledgeable as possible about short-term rental laws.

Local, State, & Federal Regulations for Short-Term Rentals

Regulations for short-term rentals vary significantly by location, so real estate investors should always read up on the rules in their area.

Licensing Requirements

Many cities require hosts to obtain a general business license and a short-term rental license or permit before they can legally rent out their property on a short-term basis. The requirements for obtaining these licenses may include the following.

  • Background checks
  • Proof of insurance
  • Inspections
  • License fees

Failure to comply with local licensing laws could result in fines, other penalties, and being barred from having short-term rentals.

Taxation Rules

Hosts are typically required to pay taxes on any income generated from renting out their property on a short-term basis. You will need to pay the following types of taxes.

  • State taxes
  • Local or city taxes
  • Hotel occupancy taxes, if applicable
  • Federal income tax

Taxation rules will depend on whether or not the rental is your primary residence. If you choose to rent out your primary residence for fewer than 14 days per year, you aren’t required to include it as income on your taxes. More than 14 rental days per year mean you have to report the income but can also deduct expenses and depreciation.

Occupancy Limits

Occupancy limits set by state and federal governments dictate how many people can stay in a single unit at any given time. For example, some states may declare that up to two people may occupy one bedroom at a time. Similarly, states and cities may allow up to four or six people to occupy a one-bedroom unit.

Occupancy limits ensure that guests do not overcrowd the property, which could lead to safety issues or damage. However, it is the owner’s responsibility to ensure that guests adhere to occupancy limits.

Insurance Requirements

Most states require that investors carry liability insurance when operating a short-term rental business. Doing so protects both hosts and guests from potential costs caused by damage to the property or accidents. Proper insurance also protects investors from financial losses due to unexpected circumstances, such as natural disasters or vandalism of their properties.

Safety Standards

All short-term rentals must meet certain safety standards, which state and federal governments set. These standards often require the following things to be present on a property.

  • Smoke detectors
  • Carbon monoxide detectors
  • Fire extinguishers
  • Emergency exits
  • Window guards (if applicable)

The government designs these rules to ensure guests remain safe during their stay and protect investors against legal fees should an accident occur.

Understanding state and federal regulations for short-term rentals is essential for real estate investors to succeed in this industry. Knowledge will help them avoid penalties associated with non-compliance and protect themselves financially against potential liabilities.

Enforcement of Short-Term Rental Laws

To work, governments must enforce short-term rental laws. They do this by having reporting requirements and leveling penalties for non-compliance.

Reporting Requirements for Hosts

Hosts must regularly report their rental income in many jurisdictions, including submitting occupancy reports and guest information. Although hosts must report all short-term rental activity, they’re not required to submit any personally identifiable information about guests.

Airbnb handles some level of tax booking through the site, but many other platforms do not. Ultimately, the host is responsible for complete reporting.

Penalties for Non-Compliance

Short-term rental laws vary by jurisdiction, but hosts and guests who fail to comply with applicable regulations can face various penalties. These may include the following.

  • Fines
  • Suspension or revocation of licenses
  • Criminal charges

The Internet provides many helpful options for short-term rental owners. You can easily use automated systems, such as software programs, that track occupancy rates and alert you when your city or state enacts new rules. These tools will help you stay up-to-date on all relevant requirements.

Short-Term Rental Laws by State

What Are the Short-Term Rental Laws in Florida?

Laws pertaining to Florida investment properties vary by county and municipality. Generally speaking, local governments regulate the number of days you can rent a property as a short-term rental, which is any lease agreement that lasts for less than six months.

Statewide, all short-term rental hoses must acquire a Florida Department of Business & Professional Regulation license. The application process includes basic information about the property and nominal licensing fees.

What Are the Short-Term Rental Laws in Colorado?

Currently, short-term rentals are regulated locally in Colorado, and each city or county may have its own set of rules and regulations. For example, owners of Airbnbs in Denver obtain a license and permits, limiting the number of rental days per year. Boulder, on the other hand, has specific zoning requirements for short-term rentals. It’s important to do your research and ensure you comply with all the relevant laws and regulations before buying Colorado investment properties.

Colorado has many major cities that allow short-term rentals, such as the following:

  • Aspen
  • Boulder County
  • Breckenridge
  • Broomfield
  • Denver
  • Colorado Springs
  • Fort Collins
  • Vail

Most cities include designated zones that dictate when short-term rental hosts can operate. Always research the local ordinances in your area before investing in a short-term rental property in Colorado.

What Are the Short-Term Rental Laws in Texas?

As of May 1, 2017, Texas began collecting and remitting the 6 percent state hotel occupancy tax on all short-term rental activity. Although Airbnb handles some of the tax preparation, hosts are still responsible for collecting and remitting state hotel occupancy taxes to the Comptroller.

However, the state still offers some of the most popular cities for investing. Vacation rentals are a great investment in Austin. All owners are required to get an operating license and renew it every year. Although owners of Texas Airbnbs, the state doesn’t collect any personal income tax.

What are the Short-Term Rental Laws in Washington, DC?

Washington, DC, vacation rentals are permitted in every part of the city as long as the property owner has the necessary short-term rental license. The District of Columbia also requires proof of liability insurance and a Certificate of Clean Hands, which is a document that proves the business owner is up-date-on all taxes owed to the District in the last month. These owner-friendly laws provide many opportunities for Airbnb investments in DC’s best neighborhoods.

Learn the Laws & Make Better Investments

In conclusion, short-term rental laws are becoming increasingly strict as cities and states look to regulate the industry. Enforcement of these laws can vary from city to city, but investors should take the necessary steps to ensure they follow all applicable rules and regulations. With careful research and planning, real estate investors can make informed decisions about their investments in short-term rentals.

For informational purposes only. Always consult with an attorney, tax, or financial advisor before proceeding with any real estate transaction.