Super Bowl Bucks for the TakingSubmitted by Affiance Financial on September 17th, 2017
by Steven E. Warren, CPA, MBT
Rent your home for the week, income tax free!
Affiance Financial is pleased to share the following article by Steven E. Warren, CPA, MBT. Mr. Warren practices accounting and consulting at Schechter Dokken Kanter CPAs, a Minneapolis CPA and consulting firm, and he is an adjunct professor at the University of St. Thomas. Mr. Warren can be contacted at firstname.lastname@example.org or (612) 332-9391.
Many local hotels, bars, and restaurants have been preparing for the extra people and spending that Super Bowl LII will bring to the Twin Cities. So you’re not currently in the hospitality business, but you want a piece of the action too? If you own your own house (and maybe even if you don’t), you may also be able to profit on this unusual occurrence for the coldest place to ever host the Super Bowl.
If You’re Leaving Town Anyway…
A coworker remarked half-jokingly that Super Bowl week would be the perfect time to leave town, with the expected increased congestion and stress the big game will likely bring to its host city. If you’re going to leave town anyway, a tidy profit could probably be made by renting your home, thanks to our local hotel room shortage for the event.
Is Renting Your Home Legal?
The first question to ask may be, will your city allow you to rent your home? Some area cities have placed restrictions on short-term rentals and at least one Minneapolis suburb has banned short-term rentals altogether. Your community may require you to purchase a license or a permit. Start by viewing your city’s website, and if you can’t get your answers that way, a call to city hall may be in order.
If you are part of a home owner’s association, you should check your association’s bylaws for restrictions. If you are a rental tenant, check your lease agreement to see if short-term sub-rentals are allowed. Consider seeking the advice of a real estate attorney if you are not comfortable interpreting the documents. An attorney can also prepare the lease agreement.
“What if…” has an endless number of ways to end the sentence, many with the same answer: insurance. You should check your homeowner’s policy or call your agent to find out what kind of coverage you have against a tenant trashing your home, getting hurt on your property or hurting someone else on your property. If your current coverage is not adequate (and it probably isn’t), you may be able to add coverage for short-term rentals or purchase a separate short-term policy. Even with appropriate insurance coverage, obtaining a large deposit is highly recommended.
Some of the online hospitality services like Airbnb offer insurance coverage and perform at least a minimal background check. While an online background check hardly guarantees you will get a great renter or catch prior criminal history, it can help weed out some who do not appear worth the risk of hosting.
Rental Home Income Tax Loophole
You can rent your home for as many as 14 days without having to report the income on your income tax return. The down side is that you can’t claim related deductions. This loophole only applies to a residence that you use personally for at least 14 days during the year (or 10 percent of the days rented at fair value, if greater).
Stuck with Sales Taxes
Sales taxes will apply to home rentals lasting less than 30 days. Depending on where the property is located, the rate in the Twin Cities metropolitan area can be as much as 11.025% when considering all potential state, county, and city sales taxes.
Parking Spots to Spare
Minneapolis’s website notes that “vehicles may not be parked in yards or on unpaved surfaces…” Additional research may be needed to determine if and how you can rent your driveway or lawn while abiding by your local ordinances.
Regardless of whether renting a parking spot is legal, the Minnesota Department of Revenue considers temporary parking revenue subject to sales taxes. You, as the renter, must collect and remit the sales taxes to the state. “Temporary,” for this purpose, is a rental period of less than 30 days. The sales tax rate can be as high as 8.025% in the Twin Cities metropolitan area depending on where the spot is located.
The 14 day rule discussed above is for personal residences only. However, it appears that your driveway or a section of your yard can qualify for this exclusion.
Although red tape could get in the way, the Super Bowl premium on rentals may make it worth the hassle – if renting is allowed. Perhaps your CPA can help you determine if renting out your place is a prudent move for you; and if it is, help make sure you remain in compliance with the law.
The views shared in this article are strictly those of Steven E. Warren and do not represent those of Affiance Financial. Moreover, this article should not be viewed as advice. Please consult with your tax, legal, and/or other financial professionals when considering renting your home.