All Forum Posts by: John Carbone

How many units are you talking about?

Quote from @Collin Hays:

John, 9.75 is TN state tax.  The additional is the county tax.  You do not need an additional license in Cocke County (although you still remit them taxes), but you do need a license in Sevier County, although they will gladly still take your taxes without it.  ;)  

You are paying taxes on the entire amount of the transaction, other than VRBO or AirBnB's service fees.  You do not pay taxes on those.  I had to fight TN in a sales tax audit last year over this issue, but they finally ruled that VRBO fees are not taxable to me - they are taxable to VRBO.  So they are going to collect this tax on the service fees from the guest through the transaction, and then remit to TN.

Hope this helps.

Thanks Colin, I assumed there could be some audit risk on something like this. It’s great to have confirmation that the fees paid to the sites by guests are not included (I was worried about this being incorrectly included)

I backed into the numbers, and on VRBO it does indeed seem they are withholding correctly based on what you are saying. $1498 rate + $200 cleaning and $216.50 remitted by vrbo (216.50/1698) is exactly 12.75 percent. Seems like no further action is needed as the host.

For the AIR example I can’t figure out how they are collecting, and if I’m still on the hook for more (or if they are withholding too much.) if following the VRBO formula (which seems correct),  the air example is $112.73/ (598+200) which equals 14.13 percent (these examples are the same properties so nothing is different from tax entities).

I’ve been trying to figure out if avalara (my lodge tax) is even relevant in this region. So it seems if you use VRBO it’s not needed, but for AIR I still can’t figure it out (I assume my lodge is not needed but that air may be over withholding)?

I definitely need an expert opinion on this from a veteran in this market. From my understanding, the total tax paid should be 12.75 percent, and what I read from older posts was that 9.75 percent is collected, but hosts are still responsible for the county 3 percent tax (maybe this changed?). Based on what I’m looking at though from both vrbo and Air it seems like they are collecting way more than 9.75 in tax from the customer on my behalf. Also, regarding licenses, I got the business license from sevier county, are there any other licenses needed, perhaps from state level (I’m outside city limits). I also plugged in the address on avalara and it says it’s supposed to be 9.75 (seems like they omit county?)

here is an example of one on Air in sevier county outside city limits that I had:

$299x2 nights = $598

Cleaning fee = $200

Guest service fee = $112.66

Occupancy tax = $112.73

Total paid by guest: $1023.39
I collected $774.06 ($798 -$23.94 host service fee)—————————————————————VRBO example:
5 nights $1498

Cleaning fee $200

Booking amount: $1,698
Lodging taxes we (vrbo) remit: $216.50
guest service fee : $208
Total paid by guest: $2,122.50

Sevier county accomodations tax: $50.94
sevier county general sales and use:$46.70

Tennessee state gen sales and use: $118.86

Total tax paid by vrbo: $216.50

Received payout $1555.6 (I don’t have the subscription so I pay the commission)

thanks 

Quote from @Bonnie Griffin Kaake:

 @Pretty Khare

As others have mentioned, you do need a savvy CPA to help you with this so you are on the right side of the IRS. One thing that is not clearly mentioned above is that if you are materially participating in the short-term (Airbnb or VBRO type property), it is a business, like a hotel and qualifies as an active investment, not passive. And, you don't have to be a real estate professional to take advantage of this benefit. Just be sure you are not staying in the property for personal use for more than 14 days or more than 10% of the time it is rented to others. For accelerated depreciation purposes, a short-term rental is less than 30 days and the property must be depreciated over 39 years, not 27.5. Cost segregation is excellent for STRs because you can take it to offset the terrific gains on this type of property as well as off-setting it against W2 income if you are materially participating in its management. 

My understanding is that to be classified as a hotel and active you need to be providing substantial services. 

Quote from @Yonah Weiss:

Quote from @John Carbone:

I think the Brandon Hall proposal is very interesting. The issue is most accountants think what he says on this topic is not accurate. Not the 10 percent down aspect, just the whole idea that you can deduct against w-2 income without being a RE professional. It’s true that you can have a 10 percent down and have it classify as investment property for tax purposes as long as you can meet the irs definition of investment property while also meeting your lenders occupancy requirement. 

Irs determination “You're considered to use a dwelling unit as a residence if you use it for personal purposes during the tax year for a number of days that's more than the greater of: 14 days, or. 10% of the total days you rent it to others at a fair rental price.”

 I'm wondering what data you are using to determine your statement: "The issue is most accountants think what he says on this topic is not accurate." The "STR Loophole" as @Daniel Murphy explained below, is pretty clear "Materially participate & rent for less than 7 days, you should be able to write it off against active income."

I have spoken with dozens of CPAs that understand the ruling in the passive loss limitations as @Brandon Hall explains it (tagging him in case he wants to defend his position), and very few that don't view it that way. Of those who have not viewed it that way, they all had little experience with real estate. My experiences are anecdotal. 

I’ve spoken with a few accountants about this and the consensus has been from them that you can’t have the best of both worlds with schedule E and all the write offs. I’m not saying he isn’t right with the loophole (I agree and interpret it that way as well), it’s just so new that possible audit flag and a lengthy court case? Is there actual precedent where this has been successfully applied?

Does Airbnb allow separate EIN’s on the same account? If so is there a maximum?

I think the Brandon Hall proposal is very interesting. The issue is most accountants think what he says on this topic is not accurate. Not the 10 percent down aspect, just the whole idea that you can deduct against w-2 income without being a RE professional. It’s true that you can have a 10 percent down and have it classify as investment property for tax purposes as long as you can meet the irs definition of investment property while also meeting your lenders occupancy requirement. 

Irs determination “You're considered to use a dwelling unit as a residence if you use it for personal purposes during the tax year for a number of days that's more than the greater of: 14 days, or. 10% of the total days you rent it to others at a fair rental price.”

I would definitely get an accountant, especially if more than one property and you are just starting out. My undergrad is in accounting, and I used an accountant for mine. A lot of people will say you don't need one, which is technically true- it's just schedule E, but for the amount of money in STR it's worth it to me. And I'm also the kind of person that installs their own mini split units, so I'm not the type that just blindly outsources everything.

Quote from @Samuel Sturt:

Good evening guys! 
I have recently purchased a property that comes with a cute little "Airstream" that was previously being used for STR, and quite successfully so! However, the county no longer allows it on my property as I will be using the main residence as an STR and only one permit is allowed per lot.
So, I’m looking for help!! 
I’m looking for someone that already has experience and the systems in place to manage an STR of this Glamping style. My proposal is to park my trailer on your land, you manage it by taking bookings, cleaning and replenishing, all that jazz. In return I pay a management fee to you of 20% of gross income. (Open to negotiate! Possible a monthly rent too?) 

Ideally somewhere in Southern CA like Joshua tree but open to anywhere that can accommodate and attract the right type of guests! I’m thinking national parks 🏞 

I think you would be looking at a 50/50 partnership on this. 20 percent wouldn’t make any sense for anyone. That’s pretty much the bottom rate a property manager charges without providing land and utilities. The land itself and rv hookup would be worth as much as the airstream itself most likely, if someone had that land why wouldn’t they just buy an airstream themselves and plop it on there?

Quote from @Nathan Gesner:

Quote from @John Carbone:

Pure conjecture. Call your bank right now and then come back and let everyone know that I'm right. ;)

Just because my bank would be fine doing it doesn’t mean there isn’t a scenario where a bank legally could and would do it. The whole point is if he gets it in writing from HIS bank then he won’t have a problem. Giving advice to someone to get something in writing is always sound advice.