Long Beach Island Real Estate Rental Sales Tax
The State of NJ just passed, effective October 1st 2018, a revision that charges all short term rentals a state sales tax AND a lodging tax. There is no doubt that this will have an impact on the LBI real estate market as a whole. Both the LBI real estate sale market and the rental market on Long Beach Island will have to adjust to this new change and how it will impact investment in the area. The good news is there are provisions in the law that can be used to avoid the tax in its entirety by renting through a real estate agency.
LBI Rental Sales Tax
I must begin by saying I am not an accountant, tax adviser, etc. and my intention here is to provide general information. The core tenets of the law are as follows:
- The tax applies to short term rentals (90 days or less)
- Any short term rental is subject to a 6.62% sales tax AND a 5% lodging tax for a total of 11.62%
- Any homeowner who rents on their own either privately or though an online advertising site like VRBO or Homeaway is required to make sure that this tax has been collected and paid to the State of NJ
- Any rental that takes place through a real estate agency is NOT required to collect or pay the state sales tax
The most negative impact of this new tax law is the obvious increase in price. The LBI real estate market is a high priced market in both sales and in rentals. A roughly 12% increase in rental rates could easily drive away some consumers. Likewise most homeowners will not be willing to absorb all or part of this tax as it will dramatically reduce their income. That said the ability to rent via a real estate agency and avoid this new tax could well prove to be the saving grace of investment in the LBI rental real estate market.
The Economics of LBI Summer Rentals
Many will say that renting through an agency is simply too expensive. In fact the actual costs of renting through a real estate agency are surprisingly low. For example if a homeowner is looking to rent a week for $5,000 on VRBO or Homeaway it is usually subject to a tenant-paid booking fee of around $350. In addition VRBO and Homeaway will charge a credit card processing fee of about 3%. Therefore to net $5,000 this week must be priced around $5,500. Many real estate agency charge about 10% as commission (and there are no credit card processing fees or hidden charges) so the week would cost the same $5,500 to the tenant in either case. The real difference here is that now, with this new tax law, the week rented by-owner will be subject to a charge of 11.62% making this far more expensive! Investment in the LBI real estate market is still a viable and lucrative endeavor…the dynamics have changed somewhere due to the new LBI rental sales tax but there are ways to work around it and still obtain high rates of return in the LBI real estate market.
By : Nathan Colmer | The Van Dyk Group
Cell: 609-290-4293 | Office: 800-222-0131 | firstname.lastname@example.org
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