The Business Owner's Guide to Financial Freedom by Mark J. Kohler

Author:Mark J. Kohler
Language: eng
Format: epub
ISBN: 9781613083758
Publisher: Entrepreneur Press
Published: 2017-10-19T04:00:00+00:00

As a result, many people have purchased second homes with the anticipation of renting them only to find resentment and opposition from the locals. Moreover, if those locals can become organized and grab the attention of the local government, sometimes they can pass ordinances to ban short-term rentals altogether, blowing a great big hole in your business model. It’s important to look at local laws, including HOA rules, as to what your options are for a vacation rental and the rules you need to follow.

Regrettably, I also have to mention taxes. Sorry. All of that incredible net income and profit comes with a cost. Remember how I stated above that you are now in the hotel business? Well, that’s exactly how the IRS sees it as well. Thus, you have to report this rental activity on a Schedule C, and not Schedule E (as you would with a typical rental). It’s not the end of the world, but you need to implement a little creative tax planning to handle the tax impact (a topic beyond the scope of this book). A simple meeting with your tax advisor should address this issue.

Also, don’t forget the hospitality tax that many local jurisdictions are implementing. If a local city or township doesn’t directly prohibit nightly rentals in your area, they can very well impose a hefty hospitality tax to discourage the rentals in that area or simply as an effort to cash in on the fun as well. Make sure you research this issue carefully before jumping in with both feet.

Bottom line: the point of this section is that as an entrepreneur, you should understand that owning a vacation rental is clearly owning another business. You may find that there is value in having a nice place in your favorite vacation spot and not having to worry about where you stay when you visit, but just make sure to do your homework and run the numbers.

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