Every week, Mansion Global poses a tax question to real estate tax attorneys. Here is this week’s question.
Q: I live in New York and I own a second home in California that I don't use often. I'm considering offering it up for short-term rentals. What can I expect to pay in taxes?
A: In California, short-term rentals of a residence, normally defined as 30 days or less, may be subject to three different taxes: federal, state and city or county taxes, said H. Michael Soroy of Law Offices of H. Michael Soroy in Los Angeles.
The federal income tax applies only if the total rentals exceed 14 days during the calendar year and after reasonable expenses related to the rentals are deducted, he said.
Reasonable expenses include insurance and maintenance costs, which are allocated between rental use and personal use, said Stanley Barsky, a partner at Fox Rothschild, a New York law firm. "For example, if the property is used for a total of 150 days, consisting of 100 days of rental for fair rental price and 50 days of personal use, you would generally deduct two-thirds of the expenses associated with the property," he explained.
More:What Tax Deductions Are Available for Eco-Friendly Homes?
The property owner’s tax bracket determines the amount of federal income tax he or she will pay, and ranges from 10.0% to 39.6%. Mr. Soroy added.
As for the state tax, non-California residents must pay on income earned in the state, but California taxes may be deducted on the federal income tax return, Mr. Soroy said.
New York residents, in particular, are subject to New York taxes on their worldwide income, Mr. Barsky said.
"They can claim credit in New York for California taxes paid on California-source income. Plus, state and local taxes, whether paid to New York or California, are generally deductible for federal income tax purposes," Mr. Barsky said.
In terms of city or county taxes, property owners should check specifics with the city’s/county’s business bureau, finance office, or similar agency, Mr. Soroy said.
"With the increasing popularity of Airbnb and other short-term rental networks, California cities and counties increasingly regulate and tax short-term rentals," Mr. Soroy said.
More:What Are Some Tax Write-Offs Related to the Purchase of a New Home?
"As with hotels, such municipalities levy an occupancy tax, which typically ranges from 10% to 15% of the gross rental income, including cleaning fees," he added.
In addition, according to Mr. Soroy, a business or rental permit also may be required, "although enforcement is in its infancy."
Email your questions to editors@mansionglobal.com. Check for answers weekly at www.mansionglobal.com.