Tax rates, tax refunds last week at my other tax blog
Is New York's high cigarette tax rate why the Empire State tops the smuggler list?

Obama inauguration means tax-free short-term rental income for many Washington, D.C.-area homeowners

The second inauguration of President Barack Obama might be more low-key than his historic swearing in four years ago, but it's still going to be plenty profitable for lots of folks.

No, I'm not talking about the D.C. power brokers this time.

I'm talking about folks who own property in the national capital area and who are renting it to visitors.

House for rent

The ABC New blog The Note says "some D.C. residents are making a pretty penny off inauguration attendees this weekend by renting out their spaces through social media sites. Airbnb, a website that allows  people to rent their homes to travelers and vice versa, is expecting roughly 2,000 people to stay in D.C. to partake in the inauguration festivities using its service, up from 150 people in 2009."

The even better news for these inauguration landlords (and today's Daily Tax Tip): Money collected on short-term rentals is tax free.

When you rent your residence for 14 days or less, you don't have to report any of the rent money as income.

That's right. Folks who voted for Mitt Romney and don't want to watch all the celebrating Democrats who've invaded their backyard can rent their homes to the opposition and pocket the cash tax-free.

If the ABC report is correct, they should collect enough to pay for a few days at a red state resort. I hear Kiawah Island, S.C., has some really nice options.

OK, I know, it does sound too good to be true. But here's the word directly from the recently updated website page for Tax Topic 415, Renting Residential and Vacation Property:

"There is a special rule if you use a dwelling as a home and rent it for fewer than 15 days. In this case, do not report any of the rental income and do not deduct any expenses as rental expenses."

If you missed out this time, D.C., Maryland and Virginia residents, mark your January 2017 calendars and hope Congress doesn't make any tax reform changes to this provision in the meantime.

Beware state rules: While I glad I could share some good federal tax news about short-term rentals, I also must bring a bit of less welcome info in this area.

Many local governments get in on these rentals by requiring homeowners to obtain permits. You know what that means. Fees.

It happened last year here in my current hometown of Austin.

Visitors seem to flock to the Lone Star State capital city every weekend of the year for some sort of revelry. There are the biggies -- South by Southwest, Austin City Limits Music Festival and the U.S. Grand Prix Formula One race. But other folks show up for things like JuggleFest, too many marathons, a kite flying convocation and the Star of Texas Fair and Rodeo.

So last year, the Austin City Council adopted an ordinance that requires Short-Term Rentals (STRs), often called "Vacation Rentals by Owner," to obtain a license to operate if they rent houses and residential units for periods of 30 days or less.

Of course, the rent money should more than cover the $285 fee, but most -- OK, all -- potential short-term landlords are not happy about it.

Similarly brief rentals also are causing problems in the Big Apple.

Last fall, the New York Times reported on aggressive city enforcement officers who are cracking down on folks who run afoul of rules related to illegal transient hotels.

The story tells the tale of a man who rented his bedroom in the East Village apartment where he lives for $100 a night on Airbnb while he was out of town. When he returned, he found himself facing five violations that, added together, could come to potential fines of more than $40,000.

The lesson for would-be limited time landlords is clear.

Enjoy the rental payments that are free from the Internal Revenue Service's clutches, but make sure you know and follow all state and local short-term leasing laws.

You also might find these items of interest:


Feed You can follow this conversation by subscribing to the comment feed for this post.

The comments to this entry are closed.