Running a Rental Business

Legal Considerations for Vacation Rental Hosts: What You Need to Know

Avoid costly hosting mistakes! Hosting on platforms like Airbnb and VRBO requires more than just listing your property on a website. Learn important legal tips on zoning, taxes, and insurance to protect your short-term rental and stay compliant.

By The Turno Team

Last updated: December 12, 2024

Understanding the Legal Basics of Vacation Rental Hosting

Navigating the legal landscape of short-term rentals is essential for hosts looking to operate successfully and avoid costly pitfalls. Understanding legal aspects that range from zoning regulations to tax obligations to licensing and insurance requirements will help you manage your short-term rental seamlessly while protecting your investment.

Zoning and Property Use Restrictions

Zoning and property use restrictions are critical considerations for short-term rental hosts. Many cities and counties regulate where short-term rentals are allowed, often limiting them to specific zones or requiring permits for operation. 

Zoning Laws 

Some cities have relaxed short-term rental restrictions, some have stricter regulations, while others do not allow the presence of STRs in their community. Zoning laws are important when choosing the location for your short-term rental. Visit your local government’s website and review the zoning rules, planning codes, or city ordinances to see what type of restrictions you are dealing with. In the 2024 election, short-term rentals were on the ballot for many states, with some cities rejecting short-term rental bans and others approving increases in lodging taxes. In some cities like NYC, you’ll find it almost impossible to set up a short-term rental, but in others, you’ll face fewer restrictions and a more straightforward setup for your short-term rental listing.

Homeowner Association (HOA) Rules 

If you’re in a neighborhood with an HOA, reviewing HOA guidelines to verify any restrictions or regulations for short-term rentals is essential. HOAs set community standards and policies, and things like excessive noise, limited parking, and more may deter HOAs from allowing short-term rentals in the neighborhood. 

Licensing and Permits

Hosting on Airbnb and VRBO is more than just listing your home on the platform. In many cities, you must obtain a business license and rental permit and abide by specific laws and regulations before welcoming guests to your property. If not, you’ll be subjected to hefty fines and can even be banned from listing your property. 

Local Business Licenses

Short-term rental regulations vary by city, but a general business license is the most common license needed to operate a vacation rental. A local business license permits you to operate within a particular city or jurisdiction. Once you’ve obtained your local business license, it’s important to maintain the necessary licenses to avoid fines. If you’re unsure where to start, visit the Small Business Administration to get up to speed and identify what’s needed for a business license in your jurisdiction.

Short-Term Rental Permits

A short-term rental permit, also known as a vacation rental permit or short-term occupancy permit, is a license that allows you to rent out your property for stays typically less than 30 days. The permit may also require that your property meets zoning restrictions and safety standards. Almost all cities will require you to have a short-term rental permit, but again, rules and regulations vary, so it is crucial to do your research to see what is needed from your local government. For example, renting out your home in Santa Monica is only allowed if the host is on-site. However, in Fort Collins, Colorado, you only need to register your STR business and ensure your rental fits the dwelling type requirements. 

Occupancy Limits

Some regulations limit the number of people who can occupy a short-term rental at one time. The occupancy limit varies by location, even within the same state. For example, in Charlotte, NC, occupancy is limited to 2 people per bedroom plus two extra guests, whereas in Asheville, NC, occupancy is limited to only two people per legal bedroom. Verify with your local government occupancy restrictions and abide by those rules when setting up your listing.

Tax Obligations

Tax obligations in the short-term rental industry can be complex, and hosts must be aware of the types of taxes they will face when managing a short-term rental. It’s essential to understand your area’s tax regulations and how to use tools to track earnings. As with other lines of business, it’s good practice for hosts to consult with a tax professional to ensure compliance and avoid penalties.

Local and State Taxes

It is imperative to check your local and state taxation rules regarding your short-term rental business. You may be subject to local and state taxes, lodging taxes like the transient occupancy tax (TOT), and other tourism-related taxes. You’ll also want to confirm who is responsible for collecting taxes. In some locations, Airbnb is responsible for collecting and remitting the taxes, while in others, you will be responsible for collecting the taxes. 

Income Tax Reporting

You must report any earnings from your short-term rental listing(s) each year on your state and federal tax returns. There is one exception to reporting, and that is the 14-day rule. If your property is rented out for 14 days or less throughout the year, you are exempt from reporting the rental income on your taxes. Short-term rentals are subject to different taxes, so keep all documentation well-organized for tax reporting purposes.

Tax Deductions for Hosts

Document any business expenses for managing your short-term rental. If you demonstrate material participation, you can write off “ordinary or necessary” expenses for operating your business. Necessary expenses include replacing towels or linens, property taxes, repairs and maintenance, mortgage interest, utilities, and insurance.

Cleaner and Service Provider Taxes

Paying cleaners through Turno simplifies U.S. tax compliance for short-term rental hosts. Since Turno processes payments via Stripe, hosts are relieved of the responsibility of issuing 1099 forms to Marketplace cleaners. Stripe handles the financial transactions and ensures service providers receive the necessary tax documentation, such as Form 1099-K, directly yearly. This eliminates the need for hosts to track payments or manage tax obligations for cleaners hired through Turno’s Marketplace.

Turno is also partnered with Clearing, a trust accounting and automated bookkeeping software tailored for short-term rental operators to help make handling vacation rental finances easy.

Short-term Rental Insurance

Vacation Rental Insurance

Having homeowner insurance is not enough for your short-term rental. Those looking to protect their investment should also highly consider short-term rental insurance. Short-term rental insurance can include property damage, liability coverage, loss of rental income, and more. Property owners should talk to specialized insurance providers like Proper Insurance to discuss a policy that fits their specific property needs. 

Liability Coverage

Liability insurance is essential for short-term rental hosts to safeguard against potential guest injuries and property damage claims. Hosting a rental property exposes owners to risks such as a guest tripping and falling, sustaining an injury, or causing accidental damage to the property. Hosts could face costly legal claims, medical expenses, or repair bills without proper coverage. Specialized short-term rental insurance policies address these risks, providing liability coverage and peace of mind so hosts can operate their rentals confidently.

Host Protection Plans (e.g., Airbnb’s Host Guarantee)

Look into host protection plans offered through online travel agency platforms. Airbnb offers AirCover for Hosts, which provides top-to-bottom protection and includes host damage protection and liability insurance. Insurance will look different for every host, so talk to your insurer and see what might fit you and your needs best. VRBO offers host insurance called VRBO Host Insurance.

Health and Safety Regulations

Staying compliant with health and safety regulations protects guests and shields you from liability. Here are a few health and safety regulations you don’t want to skip out on:

Safety Codes and Inspections

Many local governments mandate that short-term rental properties meet specific safety standards. This includes fire safety (smoke detectors, fire escapes are functional, and emergency exit plan) and carbon monoxide detectors. Inspections may be required depending on your city or county, so check local ordinances to see what’s needed for compliance. 

Cleaning and Sanitization Standards

Hygiene has become a significant focus in the short-term rental industry, particularly since COVID-19. Hiring cleaners, or as Turno calls them, turnover specialists, to effectively and efficiently clean your property after every stay can boost your cleanliness ratings and repeat bookings. Through Turno’s Cleaner Marketplace, vacation rental hosts can connect with reliable and affordable cleaners. Simplify your cleaning procedures through customizable photo checklists to ensure all standards are met.

Emergency Procedures

Establishing a comprehensive safety and emergency plan is vital for the safety of guests. Share information on emergency exits and fire escape routes with a map, and explain how to use safety equipment like fire extinguishers and alarms. In your listing and guidebook, include local emergency contact information with a list of contacts that include fire and police departments, the nearest hospital or urgent care, and your direct contact information. Make sure you have a first aid or emergency kit readily available for guests to use should the need arise. 

Anti-Discrimination and Privacy Laws

As a short-term rental host, understanding and adhering to anti-discrimination and privacy laws is essential for a compliant and welcoming rental. These laws protect guests’ rights while fostering trust and professionalism in hosting practices. Below is a breakdown of two key areas:

Fair Housing Act and Anti-Discrimination Policies

The Fair Housing Act (FHA) prohibits discrimination in housing-related transactions based on race, color, national origin, religion, sex, familial status, or disability. While this mainly applies to long-term rentals, Airbnb also enforces its own anti-discrimination policies. Non-compliance can result in legal consequences or removal from the Airbnb platform. Assess guests based on their ability to adhere to house rules and policies rather than personal characteristics.

Privacy Laws

Respecting guest privacy is crucial for building trust and staying compliant with privacy laws. Airbnb has set privacy guidelines that hosts and guests must follow, as well as the need to disclose security cameras, recording devices, noise monitors, and smart home devices. Following privacy rules and regulations will help your guests feel safe and comfortable during their stay and foster trust between you and your guests.

Data Privacy & Guest Information Security 

Privacy Laws like GDPR and CCPA

As a short-term rental host, protecting guest privacy isn’t just about earning trust—it’s a legal requirement under privacy laws like the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA). These laws outline how personal data should be collected, stored, and shared, impacting hosts who interact with guests’ sensitive information. 

Best Practices for Data Security

Guests’ data privacy is as important as their experience at your home. Implementing best data security practices will make the experience enjoyable for your guests and keep you protected from any legal issues. 

  • If you offer Wi-Fi at your property, set up a separate guest network and use strong passwords. It’s recommended that you change the passwords periodically to prevent unauthorized access. 
  • When using smart devices like thermostats, door locks, or virtual assistants, be sure they are not recording conversations or collecting data.
  • According to Airbnb, disclosure of security cameras and recording devices is a must. Airbnb prohibits hidden security cameras and recording devices in the home’s interior.
  • If guests log in to streaming services on TVs throughout the home, be sure to log out of all devices after they have left.
  • For properties with keyless entry, assign guests a unique code that expires after their stay to prevent unauthorized entry.  

Rental Contracts and Terms of Service Agreements

Creating a Rental Agreement

Hosts should have a clear rental agreement that discusses the rights and responsibilities of both the host and guests. A rental agreement and vacation rental insurance are necessary to minimize risks and protect you as a host. Things to include in a rental agreement can consist of property details, maximum occupancy, house rules and restrictions, payment details, cleaning, cancellation fees, etc. 

House Rules

Creating a detailed list of house rules that clearly outline your property’s do’s and don’ts will give guests clear instructions during their stay. Things to include in your house rules are noise ordinances or quiet hours, smoking, maximum occupancy, pets allowed or not, etc. Anything you feel is necessary for the guests to know must be shared in your house rules. 

Platform-Specific Policies and Compliance

Understanding Platform Rules

Each short-term rental platform has specific guidelines designed to ensure safety, fairness, and consistency for both hosts and guests. As a host, understanding and adhering to these rules is critical for maintaining your listing’s status and avoiding penalties. Airbnb’s ground rules for hosts include reservation commitment, timely communication, listing accuracy, and listing cleanliness, among other things.

Reviews and Dispute Resolution

Reviews are an essential part of managing a short-term rental, and there are specific guidelines that you’ll need to follow for each platform. On Airbnb, hosts and guests typically have 14 days after a stay where they can review each other. Influencing reviews is forbidden; all reviews should be written accurately and fairly. If you receive a negative review, remember to respond in a friendly and professional manner. 

Cancellation Policies 

While hosts canceling reservations is rare, platforms like Airbnb may impose fines or consequences for hosts who do not follow their Host Cancellation Policy. For example, on Airbnb, if the reservation is canceled 48 hours or less before or after check-in, the fee is 50% of the reservation amount for nights not stayed. Canceling confirmed reservations weakens the trust between guests, hosts, and Airbnb.

Guest Screening and House Rules 

Effectively screening guests and setting clear house rules are crucial for maintaining a safe, positive hosting experience. Hosts can review guest profiles, ask pre-booking questions, set booking requirements, and decline if they believe the host will pose a risk to the property. When screening guests, tailor your screening questionnaire to better understand your guest and the purpose of the visit. 

Staying Informed on Changing Regulations

Local and State Law Changes

Short-term rental regulations often vary by city, county, or state and can change rapidly as local governments respond to market growth or community concerns. Follow your local government channels and stay connected with your community. Attend city council meetings, planning department announcements, and zoning boards to stay informed. 

Some PMSs Integrate Legal and Tax Support

If finding legal and tax support seems overwhelming, seek out property management systems (PMS) that integrate the two to alleviate some stress. Using a PMS simplifies compliance and reduces the risk of oversight, saving you time and potential legal expenses.

Resources for Legal Updates

To stay on top of changing regulations, hosts should utilize a variety of reliable resources:

  • Local Government Websites: Many cities and counties maintain dedicated pages for short-term rental regulations, offering updates on licensing, zoning, and tax requirements. For example, Nashville’s short-term rental property permit information page on the local government website includes detailed information about permits needed, remitting taxes, renewing permits, and more. 
  • Property Management Associations: National organizations like the Vacation Rental Management Association (VRMA) and NASTRM provide valuable insights, legal updates, and advocacy support for hosts. 
  • Newsletters and Blogs: Subscribe to industry-specific newsletters or follow legal experts specializing in short-term rental law. Top industry blogs and newsletters include VRM Intel, Skift, AirDNA, and more. 

Community Forums and Groups: Platforms like Airbnb’s Community Center or local host groups on social media can help you stay informed and share experiences with other hosts.

Take Action to Protect Your Rental Investment

True for every market – short-term rental hosts must consider legal aspects like licensing and permits, zoning laws, tax obligations, insurance requirements, and more to protect their investment. Understanding that the short-term rental industry is ever-evolving and changing when it comes to rules and regulations is important to becoming and staying a successful host. 

The Turno Team Avatar
The Turno Team , The Turno Team researches and publishes articles designed to provide short-term rental Hosts, Property Managers, and Airbnb Cleaners with insightful, useful resources. Articles written by the Turno Team cover a wide range of STR interests, from the latest industry data and best practices to real-world, practical advice on running efficient, revenue-generating vacation rental businesses in an ever-changing market.