What Is the Definition of a Short-Term Rental?

Short-term rentals have emerged as a significant component of the modern hospitality and real estate landscape. These properties offer travelers an alternative to traditional hotels, providing unique accommodations for various purposes. Understanding what defines a short-term rental is important for property owners, travelers, and local communities alike, as their characteristics and regulations can differ widely. This article explores the common attributes, varied legal definitions, and tax implications associated with short-term rentals.

Core Characteristics of a Short-Term Rental

A short-term rental is a furnished residential space available for temporary occupancy. Their defining characteristic is the duration of stay, typically less than 30 days. This temporary nature distinguishes them from longer-term housing arrangements.

They are fully furnished, including essential household items, linens, and kitchenware. Utilities such as Wi-Fi, electricity, and water are often included in the rental rate.

The primary purpose of short-term rentals is to provide transient lodging for leisure, business travel, or temporary relocation needs. They serve as an alternative to hotels, offering a more home-like environment. They are available to the public, often through online booking platforms.

Jurisdictional Variations in Definition

The legal definition of a short-term rental varies significantly by local, state, and federal regulations. Jurisdictions establish different duration thresholds for what constitutes a “short-term” stay. While many define it as less than 30 days, some areas may extend this to less than 60 or 90 days, or even limit it to less than a week.

Local zoning ordinances regulate where short-term rentals can operate. Regulations may dictate whether these rentals are permitted in residential or commercial zones, and they often require specific permits or licenses. These local definitions determine whether a property can legally function as a short-term rental in a given area.

Definitions sometimes include restrictions on the maximum number of occupants or bedrooms allowed in a short-term rental. For instance, some regulations cap occupancy at two guests per bedroom plus an additional two persons. Owner occupancy requirements are another variable, with some jurisdictions differentiating between host-occupied and non-host-occupied rentals. This distinction can impact licensing and operational rules.

Tax Classification and Implications

Short-term rentals have distinct tax classifications and implications that differ from general property definitions. For federal income tax purposes, the Internal Revenue Service (IRS) classifies short-term rental activity based on factors such as the average rental period and the level of services provided. If the average stay is seven days or less, or if it is up to 30 days with substantial services provided (like daily cleaning or concierge services), the activity may be considered a business, reported on Schedule C of Form 1040.

If substantial services are not provided and the average stay is longer than seven days, the income is generally considered passive rental activity and reported on Schedule E of Form 1040. This classification impacts the deductibility of expenses and whether the income is subject to self-employment tax. Income reported on Schedule C can incur self-employment tax, which covers Social Security and Medicare contributions.

Many local and state governments levy specific taxes on short-term rentals, commonly known as Transient Occupancy Taxes (TOT), lodging taxes, or hotel taxes. The applicability of these taxes typically hinges on the rental duration, often applying to stays of less than 30 days. These taxes, which vary in rate and are typically a percentage of the total rental charge, fund local services and tourism initiatives.

In some jurisdictions, short-term rentals may also be subject to state or local sales tax, similar to other taxable services. Some areas may also reclassify properties used as short-term rentals for property tax purposes. This reclassification could shift a property from a residential tax rate to a higher commercial rate, significantly increasing property tax obligations.

Distinguishing Short-Term Rentals from Other Property Uses

Understanding what a short-term rental is also involves recognizing what it is not, particularly when compared to other common property uses. The primary distinction from long-term rentals lies in the duration of the lease agreement, with long-term arrangements typically involving leases of six months, a year, or more. Long-term rentals also fall under different landlord-tenant laws, which vary from the regulations governing transient stays.

Short-term rentals differ from traditional hotels or motels because hotels usually offer a broader range of on-site services, such as daily housekeeping, front desk staff, and room service. Hotels also operate under distinct licensing and hospitality regulations and often comprise a higher density of units within a single building. A short-term rental is generally not the owner’s primary residence during the rental period. While home-sharing models exist, the rental unit is typically not the owner’s main dwelling during the guest’s stay.