Important Financial Factors Related to Short-Term Rental Properties

If you are like many people, you may be interested in turning your property into a short-term rental. While this is a great way to add another income stream, there are certain things you need to understand, first.

While there are several third-party rental vacation booking sites to use, such as Rentbelly that make the process easy, don’t jump in without being informed.

While running a short-term rental is extremely lucrative to turn what you earn into a few extra dollars every month, or even seasonally, if you aren’t careful it may also eat up all your profits – creating a liability, rather than an asset.

Getting to Know the Facts

If you don’t currently have a clear understanding of the tax implications and rules related to running a short-term rental property, then the profits you earn may be much less than you thought. If you aren’t careful, you may wind up spending your energy, money and time on an investment that isn’t worth the return.

What to Know Before You Start Renting Your Property

Getting started with short term rentals is one of the most difficult parts. You should begin with the three C’s – calculate, calculate, calculate.

For a recreational renter, this may be a no-brainer; however, there is a strategy you can use that allows you to rent your property, completely tax free for up to a period of 14 days.

If you have a secondary residence that you rent for the majority of the year, then the strategy will be pretty different. However, when you are a high-volume renter, you also have more opportunities to defer some of the risk and tax burden that a short-term rental carries with them.

If you are looking for short term rental options, there are several factors to determine what strategy or structure is best suited for your situation. You should look at each of these factors carefully so you can fully understand the financial pulse of the investment you have made, as well as the implications related to having a short-term rental in your specific state.

Two of the strategies you should consider to optimize your profits are found here.

The Occasional Renter Strategy

If you are only planning on renting out your property for a period of 14 days, or less, then you may wind up being exempt from having to pay taxes on the money you have earned. If you have to go over 14 days, and don’t have the right business structure in place, the IRS may hit you with some high taxes on the income you have earned.

In the majority of cases, it will take you another 16 days for a renter to return the income you would have made in the 14-day period. This creates a pretty vicious income versus tax cycle.

Secondary Residence Renters Strategy

If you want to rent out a property that isn’t your primary residence, depending on the number of days you rent it, your tax strategy is going to be drastically different. You will have more opportunities to defer some of the tax burdens and the risks that short-term rentals carry.

Additional Factors to Keep in Mind

Some other things to remember include:

  • The state your property is in
  • The local and state laws
  • Homestead exemption rules and limits
  • Insurance coverage and cost
  • Tax status and implications
  • Rental agreements

When you educate yourself properly on the factors here, you will have a better understanding of the financial benefits and the potential consequences offered by the investment you made, as well as the tax implications related to having a short-term rental.


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