NY LLC for Airbnb & Vacation Rentals

Using an LLC for your rental property not only protects your personal assets, it comes with tax advantages. Here are three major benefits to forming an LLC to be aware of:

Liability Protection

This is crucial when it comes to rental spaces. Sure, not everyone in New York breaks windows and clogs drains, but accidents happen. Consider this:

Scenario 1: A tenant staying in a vacation rental in SoHo for a couple nights decides to stay in and cook dinner. While slicing an onion, the knife—which hasn’t been sharpened in years—slips and gashes the tenant’s thumb, requiring several stitches.

Scenario 2: A family rents a cabin in the Finger Lakes for a week. During a summer storm, a branch from a tree in the front yard of the rental property falls on the family’s car—totaling the car, and leaving the family stranded.

In both scenarios, the tenants could decide to sue. Would they win? That’s up to the courts. But what’s important here is that if your rental property is set up under your own name, your tenants would sue YOU. But, if your rental property is owned by an LLC, the tenants would sue the business. If done correctly, your personal assets will NOT be on the liquidation chopping block.

Pass-Through Taxation

Limited liability companies (LLCs) are one of the most popular business structures in the U.S. because of their versatility and flexibility, especially when it comes to taxes. Corporations receive liability protection, a huge plus—but they also have to pay corporate taxes. At the federal level, corporations face an income tax of 21%, and in New York, the corporate tax rate is 6.5%–7.25%.

LLCs, on the other hand, benefit from liability protection, as well as something called pass-through taxation. Typically, instead of the LLC paying taxes on all assets, the LLC’s assets pass through the business entity and get reported on an individual’s tax return.

Now, while pass-through taxation does save on corporate taxes, this isn’t to say LLC taxes are always low. It depends on how much money you make and where exactly you are. Individual tax rates in New York are broken into nine brackets ranging from a pretty modest 4% to nearly 11%. Hot local areas like New York City can add on nearly another 4%. New York also has an annual filing fee aimed specifically at LLCs with default taxation. This fee can range from $25 to $4,500 depending on annual income.

Additional Tax Deductions

You may qualify for deductions such as the qualified business income deduction (QBID), which can deduct up to 20% off your personal taxes. This tax deduction is part of the Tax Cuts and Jobs Act, and applies to pass-through entities (like LLCs). Qualifying entities must meet a certain income threshold in order to benefit from this tax deduction. This number changes from year to year, but in 2023 it was $182,100 for individual filers, and $364,200 for joint filers.

You may also qualify for a tax deduction on your mortgage. IRS Publication 936 allows homeowners to deduct the interest on the first $750,000 of your loan—however, if you’re married and file taxes separately from your spouse, then you can only deduct up to $375,000. To make sure you take advantage of all the deductions and benefits available to you, it’s a good idea to meet with an accountant or tax attorney.

New York City has special requirements for everything… including short-term rentals. In 2023, the city passed the Short-Term Rental Registration Law, which severely limits how vacation rentals can operate.

What does this mean for property owners who want to rent out their city digs to tourists? In general, the message from city government is this: don’t do it. But if you’re committed to renting out your city space, here’s what you have to keep in mind about the Short-Term Rental Registration Law:

• Registration: All short-term rentals in NYC must register with the Mayor’s Office of Special Enforcement (OSE). Once your property has been registered with OSE, your registration number must be included with your property listing wherever it’s posted, including but not limited to: Airbnb, VRBO, Booking.com, HomeAway, and more (§ 26-3103(b)).
• Posted Documents: Short-term rental units are required to provide a copy of the short-term rental registration, and post emergency exit information inside the rental unit (§ 26-3103).
• Rent-Regulated Units: If you own a unit in a building where rent is regulated by the city, you are prohibited from registering a short-term rental with OSE (§ 26-3102(d)).
• Restrictions:
  • Visitors are NOT permitted to stay in a short-term rental for longer than 30 days (§ 26-3101).
  • No more than two people can stay in a short-term rental at a given time (NYC Office of Special Enforcement FAQs).
  • The host must be living in the unit while visitors are present (Rules of the City of New York § 21-10(12)(13)).

Seriously? Yeah, seriously. It isn’t easy to do anything in New York City, but it certainly isn’t easy (or possible, in many cases) to rent out your home for less than 30 days.

Can I host a vacation rental in New York City with a 30-day minimum stay?

Yes. If you’re eager to turn your NYC dwelling into a rental to turn a profit, consider offering stays of 30 days or longer. You won’t have to register your unit with the OSE, and you won’t have to occupy the space with your tenant. (Phew!)

What happens if I violate NYC’s Short-Term Rental Registration Law?

If you don’t abide by New York’s short-term rental registration law, you’ll probably face a fine. You’ll either have to pay three times the revenue you generated as a result of the action that caused the violation, or $5,000—whichever amount is less.