The Transient Occupancy Tax (Hotel, Motel, Campground or Bed Tax) is authorized under California State Revenue and Taxation Code Section 7280, as an additional source of non-property tax revenue to local government. This tax is levied at varying rates (from 5% – 15%) for accommodations at lodging and camping. TOT funds are discretionary, in that the Board of Supervisors may direct use of these funds for any legitimate county expense. The tax code does not require any specific use of the Transient Occupancy Tax (T.O.T.) Funds.
Click the link for a list of city TOT rates:
Second homes are especially at risk during this recession. Does tightening the family budget require selling this unnecessary luxury? Not necessarily. By turning the second home into a vacation rental, families are able to realize income and in many cases, keep the home.
Many families have second homes that they have enjoyed for years, even generations. Turning your home into a vacation rental can make perfect sense. Since the home is already furnished the transition is quick and easy. Best of all, unlike full time rentals, short term rentals can still be enjoyed by the owner creating a win-win situation.
Vacation rentals have continued to grow in spite of the recession. Today’s house hunters are finding homes available in every destination imaginable. Renting a home can be less expensive than a traditional hotel, especially for families. Homes generally offer much larger square footage with the convenience of a kitchen. Surprisingly guests claim a big attraction is the ability to experience the community vibe like a local, away from the more touristy areas.
So how to get started? There are many websites, including VRBO (Vacation Rental By Owner), HomeAway and FlipKey to name a few. Do-It-Yourself owners post photos, describe the home, and list the rental rates. Those who require assistance can find management services in a variety of levels. Many enlist the help of reservation services who will screen the inquiry calls, process the paperwork and collect payments. This is especially helpful for owners who work full time and cannot be responsive to inquiries. Others will use full service realtors who will handle everything, booking through to the cleaning service, and take a sizable chunk of the rental income. The amount of time you have to devote to your project and your income needs will point you in the right direction.
This is a great article that summarizes the tax rules for second homes. You may wish to print this and take it with you on your next trip to the CPA.
For years we rented our family beach duplex as a vacation rental upstairs and as a full time rental in the smaller unit downstairs. The downstairs renters were very accommodating and given a discounted rate because the upstairs vacationers could be noisy and and they acted as informal on site managers. This program worked well and we felt it was financially secure because we were deriving income from both full time and part time sources. But as happens over time, our family’s needs changed. Our two boys became teenagers and their schedules between school and sports started taking over our family time, including the oh so important Grandma Time. So the decision was made to say goodbye to our long time downstairs renters and reconfigure the duplex as a larger vacation rental with the goal of having Grandma join us during our visits.
We set to work transforming our vacant one bedroom unit into a vacation rental, but this time we specifically furnished with Grandma in mind. There are no stairs which was a requirement due to bad knees. The bathroom has an easy access shower unlike the tub/shower combo upstairs so no changes were needed there. The bedroom got a big comfy chair with a table, reading lamp, footstool and lap blanket. The kitchen was outfit with easy to reach, lightweight and functional utensils. We added a butcher block island and created a breakfast bar with coffee & tea supplies. The French doors open to a small patio so we added outdoor seating.
Grandma loves it, and so it turns out do a whole lot of other people’s grandparents. In fact, over half of our 2010 vacation rental guests brought seniors along, or, the seniors brought the family along. Many of these guests had been coming for years without this segment of their families. In all cases that I am aware of, the seniors used the downstairs unit. Without intending to, we had tapped into the senior market and with baby boomers on the way, growth is certain.
As I close the books on 2010, I marvel on our highest rental year yet. What began as a purely personal expense on our vacation home has turned out to be a great financial investment also. What we have really learned is that if it works for our family, it undoubtedly works for our guests, seniors included.