The sharing economy is in its infancy in America, and around the world. People with time and assets are using them for their financial benefit. People with time and a vehicle are delivering clients via Uber, while people with property and an open bedroom are leasing it overnight to clients via AirBNB. It seems to be an easy way to make some extra money. Sometimes it’s money ‘on the side’, and sometimes it is a legitimate business. Either way there are expectations and liabilities that potential property owners should be aware of.
Many municipalities are struggling to react to the phenomenon of the sharing economy, especially with regard to AirBNB. Are they legitimate businesses? Should they be legitimate businesses? How can they be regulated? How can regulations be enforced? These questions, and many more, need to be addressed in small towns and big cities everywhere.
Most municipalities have zoning ordinances in place which define residential, commercial, and industrial zones and what can be done within these zones. Many neighborhoods are located in single family dwelling zones. Occupancy by more than a single family unit is prohibited by law. Separating a dwelling into multi family units or a commercial business requires permission from the local government that usually demands a public hearing. Neighbors within 300 feet, or more, are notified of the proposed zoning change for a special land use permit. The property owner, the neighbors, and the zoning board have a discussion to allow or disallow any changes.
Separating a single family home (or a multi-family home) into an AirBNB property is allowing a commercial operation in a residential zone. Neighbors are mostly concerned with traffic, parking, and activity. Regular bed and breakfast properties (B&Bs) have always needed a special land use permit to run that business in a residential zone. Permission is usually granted after improvements are made to make the home safe, neighborhood friendly, and compliant with building codes. Many AirBNB properties bypass the zoning board and just rent their spare rooms to overnight guests.
These are the main issues with AirBNB properties:
- Parking
- Absentee owners
- Adequate water and sanitary sewer services
- Electrical and safety standards
- Bathing and lavatory facilities
- Signage
- Meals being served
- Principle residence tax exemptions
- Earned income
- Collecting and reporting use tax
- Appropriate homeowners insurance
Parking is a big issue in many neighborhoods. Neighboring property owners do not want their limited street parking spaces taken by non-residents, or otherwise clear streets crowded with curbside parking. To handle this, many cities require off-street parking for each rentable room, plus 2 spaces for the property owner. It is good to be a considerate neighbor.
Occasionally, tenants rent rooms (or whole houses) and throw big parties when the property owner is not present. This can create a nuisance in the neighborhood and could cause damage to the property. Owner occupancy while the property is leased is a good way to curtail any unauthorized use.
Many homes are not suited for the amount of water usage required by an unusual number of adults under one roof. Water flow, hot water availability, and sewer usage are legitimate concerns for home owners and their guests. An inspection for appropriate service is necessary and appropriate to avoid plumbing problems.
Many older homes have quirky electrical service, inadequate hand rails on staircases, and insufficient building code compliance. For the safety of guests, any non-conforming issues need to be identified by a professional, and corrected.
Many homes have just a bath and a half, or two full bathrooms. For the comfort of the home owner and the guests, separate and private bath facilities are expected. Properties without sufficient bathroom facilities are usually denied.
Appropriate signage is necessary to define the property being leased, while not being a nuisance to the neighbors. Strangers in a new town want to easily find the property they are renting, while the neighbors do not want to be bothered by travelers knocking on the wrong door. Additionally, local homeowners with their property for sale need to make potential buyers aware that there is a special use property in the neighborhood that may affect their decision to buy.
B&B means bed and breakfast. Breakfast may be served to overnight guests. Appropriate safe serving of food must be learned and practiced.
Be aware that valuable homestead tax credits may be lost if the home is not 100% residential.
Any income from overnight guests should be claimed. Know that the income will affect your property value and you will be taxed accordingly. Taking money ‘under the table’ when renting space on a nightly basis could subject the property owner to violations that could include fines and other repercussions.
Use tax needs to be collected and reported to the appropriate municipalities. That could include state, county, city, CVB, and other taxes. Collecting these taxes requires being assigned a federal tax identification number for reporting any income received and corresponding taxes due. Also note that any income acquired through a third party may be recorded with an annual 1099 income tax form. Additionally note that direct deposits may be recorded as income by your bank with an annual 1099 income tax form.
Homeowner must be aware that their regular insurance may not cover paying guests. Commercial liability insurance may be required to cover tenants temporarily living in your home. An appropriate amount of insurance for slips and falls, and unforeseen mishaps may be suggested or required.
These are the main issues that any property operating as a B&B needs to be aware of. AirBNBs and other nightly or vacation rental properties do not always think about the requirements involved in becoming a legitimate commercial business in a residential zone. They also may not be aware of the tax implications–both collecting and reporting. It is best to know your responsibilities before a surprise comes from your local government, law enforcement agency, or tax service.
Mr Mike's Blog 
Too often, you hear someone referring to “an AirBNB,” as if it’s a thing, a certain type of transient accommodation. But AirBNB isn’t a thing; rather, it’s a packaged method of advertising, communication, and payment. Listings on AirBNB range from a mattress on the floor in a trailer to deluxe oceanfront condos. Listings on AirBNB also include REAL B&Bs that have met the zoning requirements, that have passed all the inspections, and that aren’t dodging the tax man. Enforcing state and local laws wouldn’t seem so fuzzy if municipalities focused on how a property functions and not on how it markets itself.