The Tax Benefits of Residing in an Investment Property

Posted on 3rd Sep 2016

Commercial properties for investment are primarily those that contain more than four units, or where a storefront on the ground level is the main commercial draw and the residential units are secondary. One to four family homes, in turn, are seen primarily as residences; owners rent the non-residential unit(s) to long term tenants. However, there is a new and growing trend in New York real estate which is reconfiguring that older model and encouraging owners to think of their homes primarily as investment properties. This trend is controversial, though. 

Airbnb, Inc. enables on-line booking of vacation rentals in private homes and apartments. Private individuals earn short term rental income on their properties. From the perspective of government officials, the renters are arranging for a hotel stay, but no hotel taxes are being paid. In addition, these rentals encourage transience, a violation of New York state law. Moreover, Airbnb is seen as contributing to the affordable housing crisis, since owners earn more when they remove the units from the long term housing market. Thus, the legislature hopes to impose tough penalties on this kind of real estate activity. Real estate lawyers can help individuals understand whether they are violating any laws when they reside in an investment property.

But the owners of one and two unit homes can safely pursue the Airbnb approach to investment income in a residential property. The real estate law regulating Airbnb currently only applies to buildings with three or more units. Owners of one or two unit homes in certain parts of Brooklyn have found Airbnb to be quite effective at bringing in extra income. Living in their properties and treating them as investments has made their homes affordable.  This is what opponents of Airbnb tend to forget.