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Short-term rentals may bring long-term tax issues

Accounting Today

August 2, 2017

Short-term rentals, often called vacation rentals, have exploded onto the travel scene, becoming hugely popular with homeowners and travelers alike. With the help of technology, it is incredibly simple for a property owner to broadcast their rental across the world.  Though sometimes overlooked, sales and lodging taxes are an entire class of taxes that expose you to a significant liability.  

Short-term rental property owners are required to collect and remit sales and lodging taxes on the gross rent collected from guests – the same taxes a hotel is required to collect. Short-term in most states is less than 30 days (Missouri is one of these), but there are a handful of states that have 90-day definitions and a few, such as the popular travel states of Hawaii and Florida, where short-term is defined as up to six months.

The property owner or host is required to collect lodging taxes from the guest on any short-term stays. These taxes are typically around 15 percent of the gross rent collected – overnight accommodations are heavily taxed. Sales and lodging taxes are a type of gross receipts tax and there are no deductions.

The average short-term rental will generate $20,000 to $30,000 per year in rent, thus amounting to $2,000 to $5,000 in sales and lodging taxes that must be collected and paid. This is a significant liability if you are not compliant, especially if you are audited for three to five years of history. These lodging taxes can build into a huge hidden liability for unsuspecting or unknowing owners renting their primary or second homes.

As always, feel free to call with questions or concerns!  816.224.4195

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