Owners of short-term rentals have been severely affected by the coronavirus (COVID-19) pandemic. They have experienced a tidal wave of cancellations as travel has been curtailed by government stay-at-home orders. Some communities have even temporarily banned short-term rentals to avoid contact with outsiders who may be infected.
Help is available to struggling short-term hosts from the IRS, the Small Business Administration, and from AirBNB and other short-term rental platforms.
AirBNB has established a $250 million fund to help hosts impacted by COVID-19-related cancellations during March 14, 2020 through May 31, 2020. To qualify, hosts must permit guests to cancel for a full refund. Airbnb will pay 25% of what the host would have received based on the host's cancellation policy. Airbnb is also waiving all host and guest fees on COVID-19 cancellations under its extenuating circumstances policy. For more details, see the AirBNB Coronavirus updates page.
Low-interest loans are available to help businesses suffering from the pandemic. Short-term rental hosts can qualify for either or both of the following loan programs. However, you can't use funds from each loan for the same expenses.
Congress has added millions in additional funds to the Small Business Administration's Economic Injury Disaster Loans program. These loans of up to $2 million have a 3.75% interest rate. Payments can be deferred for up to four years. Applicants can also get an emergency grant of up to $10,000 while applying for such a loan. Apply online with the Small Business Administration.
Congress has authorized a brand-new loan program called the Paycheck Protection Program. You can borrow up to 2.5 times what you earned each month in 2019 as a short-term host. These are two-year loans with a 1% interest rate. However, up to 80% of the loan can be forgiven if you use it for payroll, mortgage interest, and other expenses. You apply directly with participating banks and other lenders. For more information, see the SBA Paycheck Protection Program page.
Short-term hosts who qualify as self-employed business owners may be able to obtain unemployment benefits. Ordinarily, unemployment is not available to the self-employed. But the Coronavirus Aid Relief and Economic Security (CARES) Act passed by Congress makes self-employed independent contractors impacted by the pandemic eligible for unemployment for the first time.
The Pandemic Unemployment Assistance (PUA) program also increases the maximum unemployment benefit by $600 per week through July 31 and extends coverage by an additional 13 weeks, to a maximum of 39 weeks. You need to apply through your state unemployment office. Each state has its own eligibility requirements, benefit amounts, and application procedures. You can find a link to your state unemployment office at the Unemployment Benefits Finder.
If you're having trouble making your mortgage payments on your short-term rental property, relief may be available. The CARES Act prohibits foreclosures on all federally-backed mortgage loans for 60 days starting March 18, 2020. It also provides forbearance for borrowers of federally-backed mortgage loans who have experienced financial hardship due to the COVID-19 emergency. For more information, see the HUD COVID-19 Resources and Fact Sheets. Even if your mortgage isn't federally backed, your lender may be willing to extend your time to pay.
It's likely that many short-term hosts will suffer rental losses in 2020. You have a rental loss when your annual expenses exceed your income. Such losses are never welcome, but in some cases they can be deducted against other, nonrental income, such as income from a job or investments.
However, the rules for deducting losses on short-term rentals are complex. In fact, there are three different sets of rules that can apply.
Most short-term rental hosts are subject to the rules for vacation homes. These rules apply if a host (1) rents all or part of a home for more than 14 days during the year, and (2) makes personal use of the home for the greater of:
These rules always apply if a host makes personal use of a home more than 34 days during the year. When the vacation home rules apply, it's essentially impossible for a short-term host to deduct rental losses from nonrental income. Instead, rental expenses may only be deducted from rental income, with losses carried forward to future years to be deducted against future rental income, if any.
One way to avoid application of the vacation home rental loss rules is not to live in the property more than 14 days during the year, or less than 10% of the time it is rented out. If you do this, you'll have a much better chance of deducting some of your losses against other income.
Some short-term hosts have made their rentals available for free to medical professionals and other first responders who need a temporary place to stay during the pandemic. It might seem like such hosts should be rewarded with a charitable tax deduction for the value of such rentals. Unfortunately, that's not how the IRS sees it.
First, you never qualify for a charitable tax deduction when you give something of value to an individual, even if the person is needy or performing an invaluable public service. You can only get a deduction when you give money or property to a tax qualified 501(c)(3) charity.
However, even if you make a short-term rental available for free to a charity, you likely still won't get a charitable deduction. IRS rules generally don't allow a charitable deduction for a contribution of less than your entire interest in property. The IRS says that a contribution of the right to use property is a contribution of less than your entire interest in that property and is not deductible. For example, the IRS does not allow a deduction when owners of vacation homes make them available as prizes in charity auctions.