If you’re planning on getting out of town, renting out your home while you’re away canbe a quick way toearn some extra spending money.
Listing your home for rentthroughWeb sites likeAirbnb, HomeAway and VRBO (Vacation Rentals by Owner) can be fairly simple.But youmay find that becoming a host can get complicated and potentially costly if youdon’t prepare. (Make sure to find out if your town or building allows for short-term rentals — many cities and homeowners associations prohibit them.)
One of the biggest issues hosts need to be mindful of (aside from the fact that a stranger will be staying in their homes) is the tax bill they mightface. The implications vary based on whether youlive in the house or apartment and how long you’rerenting it out for.
Here are some tax guidelines based on your living situation:
You rent out your place for up to 14 days a year. The moneyearned from theshort-term rental of yourpersonal homedoes not need to be reported asincome if the home is rented out for fewer than 15 days. (That’s a hard rule.)A home is considered personal if youlive in it for more than 14 days or more than 10 percent of the total daysit is rented out to others.
One thing to watch out for if you use Airbnb: Because the company sends tax forms documenting the income to the IRS, some hosts may get a letter from the federalagency later asking them to pay up on unreported income. But if the stays fall within the 14-day time period, hosts can explain in aletter that the income is not taxable and attach proof,says Jackie Perlman, principal tax research analyst at the H&R BlockTax Institute. “The better your records, the better your outcome,” she says.
You rent out your place for more than two weeks a year. If yourpersonal home is rented out for more than 14 days a year, then the rent you collect must be included in your income. Because it’s a personal home, your options for taking deductions willbe limited, saysJeffrey Porter,an accountant with Porter & Associates inHuntington, W. Va.
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You rent out a place that isn’t your main home. If you don’t stay at a home often enough for it to be considered personal, say a vacation home, and you rent it out, then that moneymust be reported as rental income on the Schedule E. Rental costs can be deducted, but those costs need to be separated from any expenses faced during personal use.
Besides the tax bill, othercostsyoushould prepare for, regardless of how long you’reloaning out yourhome, include:
Servicefees. Airbnb charges hostsa3 percent fee that covers the cost of processing payments. HomeAway, which owns VRBO.com, charges hosts for listingtheir homes on the site. People planning to use the site regularly can pay $349 annually to advertisetheir property and are not charged a commission for each booking. Those renting their homes out less frequently can opt to avoid the annual fee by paying 10 percent foreach booking made through the site instead.
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Supplies.Airbnb recommends that hosts provide clean linens, towels and other amenities to guests. Depending on how often you’ll be having guests, it might make sense to buy a separate set of linens. You may also need to invest in locks if you want to keep certain rooms and closets out of bounds while people are staying in the home. (A standard deadbolt lock can go from $10 to $30 at Home Depot.)
Cleanup. You’ll probably need to spend some time cleaning the room or house bothbeforeand after you rent it out. If you’re hiring a cleaning service, youmay be able to tack on acleaning feeto the cost of the rental, but that could make it subject to service fees charged by the Web sites for each transaction.
You can alsosplurge on professionalservices that handle the cleanup and rearranging for you. For example, the startup Guesty will respond to booking requests, schedule cleanings and even handle the key exchange for a fee of 3 percent of the transaction.
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Insurance. Call your insurance company to see what is covered. Some home insurance policies cover short-term rentals. But if there are multipleshort-term visits, the insurance companymight require you to buya business policythat would cover a hotel or a bed and breakfast, according to the Insurance Information Institute. If you are renting your home for a longer period of time to one person or family, you may need a landlord or rental dwelling policy, which can cost about 25 percent more than a standard home owner’s policy, according to the institute.
Airbnb offers insuranceto U.S. hosts that would protect them if a guest is hurt during a stay and a guarantee program that kicks in if their property is damaged by a guest. But hosts should still call their insurance companies to make sure all scenarios are covered.
Once you’ve done all of the math, you’ll have a better idea of whether it will be worth it to play the role of hotel manager — or if itis better to stay on the guest side of the equation.
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