The Republican National Convention (RNC), a four-day event being held July, 2016, will bring an onslaught of visitors to the Cleveland, Ohio area. These individuals will be looking for accommodations during this time and many Clevelanders are preparing to rent out their homes for the occasion.
Cleveland locals have begun to list their residence for anywhere between $5,000 to $50,000 in the hopes of bringing in some income during this busy time. However, if you are thinking about listing your home you need to be aware of the tax consequences that could befall you if the proper steps aren’t taken.
Generally speaking, rental income is taxable with the rental income (minus expense) being added to the property owner’s overall income. This is then taxed at your usual income tax rate. The rules vary when you rent out a principal residence however.
The IRS has determined that your rental income is not taxable if the duration of the rental period is 14 days or less in a given calendar year. This will give the homeowner some simplicity in terms of taxes as the majority of visitors to the convention will be staying for less than two weeks.
There will be situations however in which people will want to stay in Cleveland for over 14 days, so homeowners must be cautious when extending their listings. This scenario will lump you back in with normal renting tax rules, with expenses needing to be calculated for the full year and divided between both rental and residential purposes appropriately. A taxpayer could also potentially move into a higher tax bracket depending on how much their rental property brings in.
Another tax scenario to pay close attention to, regardless of rental duration as it is not clear yet if short-term rentals will be affected, is the Cuyahoga County / City of Cleveland ‘bed tax.’ This is a 8.5% tax on transient guests who are occupying spaces with sleeping quarters. The duty of tax collection would then fall on the shoulders of the homeowner, who would need to get the tax from their renters and provide it to the right tax authorities. With listings readily available on the Internet, tax agencies would have no problem tracking down those who neglect to pay.
Homeowners who have decided to rent their properties need to be aware of the associated tax consequences or the excitement on the approaching RNC will be shadowed by the imminent tax bill heading their way.
What other tips do you have for renting your home during a major convention? Share your thoughts in the comments!