Short Term Rentals

[Corduroy Frog]

For years, the IRS has been trying to squeeze self-employment taxes out of what used to simply be rentals.

This latest thing is to declare "short-term rentals" as taxable for SE tax.

I'm assuming this means AirB&B and the like.  My question:

A client (C) owns a suite in Gatlinburg, TN  (a heavy tourist location at the foot of the Smokies).  He rents it to a management company (M), who pays him a flat monthly charge.  (M) in turn rents out the suite to all comers for one night - or more, maybe even a week.

M is doing "short-term rentals."  What about (C) who is receiving monthly rent?  Is C falling into the Short-Term-Rental umbrella?  I'm sure the IRS has their own interpretation, but what is the correct answer??

 

[Abby Normal]

That rule is for hotels and requires substantial support services, like daily maid service, to be subject to SE tax. I'm sure there are court cases.

[Lee B]

It also applies to Bed & Breakfasts and potentially could apply to STRs depending on the additional services provided.

[jklcpa]

Length of stay, extent of services provided, and material participation are all criteria. Depending on these factors, it could still be passive. 

I don't place much relevance on mgmt co providing a flat amount each month. That could be a partial amount set in the contract so that owner has a steady income flow, and then settled up periodically.

[ILLMAS]

11 hours ago, Corduroy Frog said:

For years, the IRS has been trying to squeeze self-employment taxes out of what used to simply be rentals.

This latest thing is to declare "short-term rentals" as taxable for SE tax.

I'm assuming this means AirB&B and the like.  My question:

A client (C) owns a suite in Gatlinburg, TN  (a heavy tourist location at the foot of the Smokies).  He rents it to a management company (M), who pays him a flat monthly charge.  (M) in turn rents out the suite to all comers for one night - or more, maybe even a week.

M is doing "short-term rentals."  What about (C) who is receiving monthly rent?  Is C falling into the Short-Term-Rental umbrella?  I'm sure the IRS has their own interpretation, but what is the correct answer??

 

Send me a PM with your email, I can send some material of a training I did three weeks ago.

[Corduroy Frog]

12 hours ago, jklcpa said:

I don't place much relevance on mgmt co providing a flat amount each month.

Judy. I am suspicious as well.  A flat monthly fee for a management company doesn't seem to fit well with their business plan.

I will investigate further with the client.  Thanks.