One of the reasons that Tempe real estate has been and continues to be such a strong investment is the potential for stable income and solid investment return through the short-term rental market. This includes short-term rental apps like Airbnb, VRBO, and HomeAway—as well as independent rental property marketers. For part of the year or the whole year—for the whole property or just the spare bedroom, bath, and kitchenette—it’s been relatively straightforward for buyers to get part or all of their mortgage covered through this rental income.
In 2016, Governor Doug Ducey signed a law ensuring that local cities couldn’t impose restrictions on these types of short-term rentals. However, what we’ve learned in the meantime is that unchecked rental income opportunities has the potential to change the characters of entire neighborhoods. Indeed, one of the reasons why Tempe residential real estate has performed so well over the last few years has been the shared pool of prospective buyers created by both investors and owner-occupied households. Along with the reliability of the rental app companies, the stability of this property rental income is based on Tempe’s popularity as a place to visit.
It was largely with these concerns in mind that the governor signed a new, modified that bill that empowers local cities to regulate certain aspects of short-term rentals. In leading the charge for these modifications and new regulatory ability, Tempe has already come up with a set of new regulations for short-term rental owners.
The good news here is that there’s no reason to think short-term rentals are in any danger of being prohibited. Even now, Arizona limits the types of restrictions that can be implemented. There are two big changes in the works, however. The first is that property owners must provide authorities with contact information when offering rentals through Airbnb, VRBO, HomeAway, or other apps. The other big change is that owners may need to get and maintain a license.
So people who have come to depend on short-term guests for property rental income or are interested in making an investment in Tempe’s real estate market aren’t going to be run out of town, so to speak. But while these regulations are unlikely to put anybody out of business, it does increase the time demands/management costs placed on rental property owners.
Other Information Reporting for Rental Property Investment
If you are likely to be affected by these new regulations, one of the things you can to minimize its impact is to review the rest of your paperwork and form filing requirements. Many of these requirements are various tax forms, either as a payer or as a payee. There are cheap 1099 software solutions that provide filing support for these types of real estate-based IRS and state tax forms. Here are just some of the potential filing requirements you may be subject to.
- Airbnb hosts should expect to receive Form 1099-K for facilitating rental payments as Third Party Network Transactions if they reached 200 different guest parties that total at least $20,000 in income.
- Foreign persons investing in the Tempe real estate market as a rental property owner may need to submit Form 1042-S.
- If you’re generating revenue through a property management company, you might receive Form 1099-MISC.
- Finally, if you sell your rental property for more than you paid for it, you may have to file Form 1099-S as well as Arizona Form 140 with capital gains taxes typically applied at 25% and 4.54%, respectively.
Hopefully, property owners, short-term guests, civil authorities, and tax agencies can strike the right balance to maintain a robust real estate market, affordable lodging options, and strong neighborhoods.