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Very nice contribution, PH. As you can see from your research, it is not a simple issue.

We've put putting our vacation home on the VR market on hold, in part because of the never ending delays with the contractors, and in part because of this fuzzy tax issue. The fall back position of it becoming our retirement home is becoming more and more attractive. It doesn't help that in doing much of the work myself I am getting too attached to the place, and would feel a bit as though I were renting out my child.

We bought our place with no experience as a VR landlord, but plenty as a customer. Not being sure that we would like being on the lending side of this industry, we looked at every use of the property to make sure this would be a winning purchase. This was also critical as we saw location after location get fed up with the occasional party house and put in regulations or prohibitions on vacation rentals. Have back up plans prepared and make sure you can afford the property if you do not rent it.

As far as providing other services, perhaps you could set up a second company that deals with that, or find a manager who provides it. That way it becomes an expense that you can break out and have the client pay directly, to avoid the impression that you personally are providing other services. I've seen some VR landlords collect a cleaning fee in a separate check that goes directly to the person doing the cleaning, and some companies that rent out things like bikes, kayaks, and even bbqs and linens. Some VRs make you bring your own linens, and others accept no rental shorter than 7 days.

Like any tax issue there is no doubt a work around if you look hard enough for it. Of course, that work around may need to be tweaked year after year as the IRS changes code. One thing for sure this industry is getting bigger and bigger which means the regulatory target on it's back gets bigger too.

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