Our situation is that this was a guest house since it was built in 1932. It has been on the tax rolls as an accessory building with living space over the garage since 1932. But in 2017 when we put it on Airbnb they are now assessing it as a separate house because we’re making money on it even though it doesn’t have a kitchen. I am going to fight it.
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I understand that I am the grim reaper here and in danger of being shot ( PLEASE DON’T SHOOT THE MESSENGER ) . I am on YOUR side. I am just bringing a dose of reality to this shocking situation.
here is an article that might address your nuance: https://www.cnbc.com/id/40658494
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you aren’t going to like this either and neither do I . Your question has caused me to research and I am learning a lot. I don’t like what I am finding out. Yuck. Q: What are the methods for determining value of property?
A: There are three methods typically used by appraisers to value real property. These are the Cost Approach, Sales Comparison Approach and Income Approach. Not every method is applicable to every property.
The cost approach is based on the principle of substitution: that a rational, informed purchaser would pay no more than the cost of building an acceptable substitute with similar utility after accounting for land and any depreciation or deterioration.
The sales comparison approach is also based on the principle of substitution: it uses sales of similar properties as a basis for comparison. It is rooted in the principal that the arms length, negotiated sale price of similar properties, best indicates the market value of the subject property. Adjustments must be made for differences in attributes, such as location, size, quality, condition, special features.
The income approach is based on the anticipated income stream generated by the use of the property and the desired return on investment. In this approach, the income (net or gross) a property will generate is estimated. Capitalization rates (rate of return) or multipliers are used to predict value. This approach is used primarily for commercial and rental property.
I think councils and local governments all over the world will be discussing how to get a piece of the Airbnb phenomenon into their coffers.
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I’m facing this as I presume are all MN Airbnb hosts: “A memo from the Minnesota Department of Revenue dated May 21 that was sent to every county assessor in the state says any property where the primary use of the home is a short-term rental should be classified as a 3a commercial property.” (contact me for the article link)This could cause many people’s property taxes to double or triple.
Does anyone have any idea how that non-residential/commercial property distinction is handled in most places? WTIP : Tax policy confusion: where do short-term rental properties fit?
Well, it isn’t residential property if it’s being used as a STR business, so classifying it as commercial sounds about right. It’s a common trend amongst local authorities, they see residential property being operated as a business, therefore the owners should pay the relevant business taxes.
JF
I’m a victim of this unjust reclassification. I’m in missouri and have a 2nd home on my property that is on AIRBNB, prior it was a rental home. Last year the henry county assessor reclasafied it as commercial. His argument is it is a business that we are making money from, it’s a short term rental business competing with hotels and motels, that he is trying to even the playing field.
We are a rural farm with no city amenities and we pay a handsome amount in occupancy tax to the county. This commercial reclassification for a residential property is flawed logic. Looking at missouri property discriptions and classification a residential property is a structure intended for human occupant living quarters, short term rental is mentioned as having occupancy tax. Many small businesses operate out of a residential property, look at all the rental properties that make up a business for landlords, they are not classified as commercial. Making money out of a residential property doesn’t make it a commercial property. This is all about an attempt to find other income sources. They attempted this at lake of the ozarks and it caused such a rucuss that the county removed the commercial classification. I think that sets a precedence. I’m fighting it and would like to hear from others regarding your thoughts and experiences with this.