Airbnb & Short-Term Rental Rules: Navigating the California Market

CEO Tam DT
If you've been thinking about starting or growing your short-term rental business, now is the time to take action. With industry leaders like Airbnb leading the way, the market is booming. Statista projects 3.62% annual...

If you've been thinking about starting or growing your short-term rental business, now is the time to take action. With industry leaders like Airbnb leading the way, the market is booming. Statista projects 3.62% annual growth in the industry in the United States alone by 2026, leading to a potential market volume of $20.359 million. Not only is it making the potential of owning property a reality for a larger percentage of younger adults who can now afford a house payment by offsetting it with rental income, but it is also encouraging the development of a wider array of short-term rental businesses who are seeing impressive returns on their investments.

The U.S. still has room for more to enter the short-term rental game, but as the market share of such properties grows so too have local regulations that govern how and where businesses can operate. As a result, navigating today’s short-term rental market means mastering the various rules and regulations not just by state but also by city or county. Before you start to stress that owning a short-term rental business in California might be more headache than it is worth, though, take a moment and review this resource.

This guide is designed as an essential aid for current vacation rental owners and property managers or for those contemplating getting into the short-term rental industry in the state of California. It offers a concise yet comprehensive review of key guidelines and crucial considerations so that your role as a short-term rental operator in California is a streamlined success.

What Is Considered a “Short-Term Rental” in California?

First things first: what is the definition of a “short-term rental”? Every state provides its own blanket definition applied to this type of property, so it is best to begin with these basics for the state of California.

According to the California Senate Bill No. 60, Chapter 307, a “short-term rental” (sometimes shortened to “STR”) in the state refers to any residential property or portion of a residential property that is rented to an individual or group for 30 consecutive days or less.

Simple, right? Well, yes… and no. For example, in some California markets, short-term rental and “vacation rental” may be used interchangeably. Be careful, though, as some municipalities prohibit vacation rentals (so you want to make sure you investigate the right terminology for your region).

Moreover, with the success of Airbnb following its debut and the subsequent exponential expansion of the industry, however, this rather general regulation has been adjusted and adopted with various different parameters by individual cities and communities in California. We’ll walk through those city-specific elements in a moment, but at the outset, this general definition is a strong starting point, particularly for those assessing whether the short-term rental industry is for them.

Starting a Short-Term Rental Business in California

Now that you have a general definition of a short-term rental in mind, let’s dive into the business components. The very first step toward starting your business in the state of California is to register your business with the appropriate state agencies. Registering your business is not only essential - it is required to be considered in compliance with local codes - but also potentially beneficial.

Why, you might ask? Registering makes your short-term rental business official in the eyes of the state. In other words, it makes your newly-formed business legitimate and thus potentially protects your concept from others. Registering your short-term rental business might also be a necessity if you wish to seek out loans or establish separate bank accounts to manage your funds.

Look Into an LLC for Your Short-Term Rental Business

There are multiple structures you can choose for your STR business, including:

  • Corporation
  • Limited Liability Company (LLC)
  • Limited Partnership
  • General Partnership
  • Limited Liability Partnership
  • Sole Proprietorship

Each of these options comes with advantages and disadvantages (for a full description of each option as defined in the eyes of the State of California, please visit the Secretary of State’s “Entity Types” page). If, though, you choose to register your STR business as an LLC, you provide yourself with a bit of a financial safety net. Categorizing your short-term rental business as an LLC means that you can protect your personal assets. This is because, under the parameters of an LLC, these personal assets are considered separate from your business debts/assets and thus are protected in the event of a lawsuit involving your business.

LLCs also come with the benefit of greater flexibility in how you choose to run your short-term rental business and manage your profits. LLCs also tend to keep state reporting requirements relatively minimal. For more on the implications of an LLC for your business, including fees, tax structures, and additional requirements please visit the State of California Franchise Tax Board.

Required Documentation to Start a California Short-Term Rental Business

Once you have determined your desired business structure, your next steps will be to pull together the required documentation to officially complete your California short-term rental business registration. This involves submitting the following documents to the Secretary of State for California:

  • Proposed name of your business
  • Articles of Organization or Incorporation (for LLCs or Corporations)

Meanwhile, you will also need to file for a series of permits and licenses. This begins by applying for your Employer Identification Number (EIN) from the Internal Revenue Service. Then, you will need to check local requirements for your short-term rental business. For example, in cities like San Francisco and San Jose, you’ll need to register your business there in addition to registering with the state. You’ll also need to account for any required local short-term rental permits (more on these later when we discuss respective cities) as well as tax obligations.

Tax Implications for California Short-Term Rentals

While the specific rules and requirements for operations will vary depending on locality, the vast majority of short-term rentals in California will be subject to taxation.

Federal Tax Implications

In the eyes of the United States government, your property can qualify as a short-term rental business if it meets the following aspects:

  • You rent your property out for a minimum of 14 calendar days each year
  • You use that property personally for no more than 14 calendar days (or more than 10% of the time that your property is occupied in a calendar year)

By meeting both of these requirements, you can maximize your potential federal tax benefits and deductions. Common expenses you can deduct when it comes to your short-term rental business property include:

  • Repairs and maintenance
  • Insurance premiums
  • Taxes (like TOT - more on this in the next section!)
  • Utilities, like water, gas, and electricity
  • Supplies - bed linens, bath towels, even wine glasses or pool toys!
  • Legal and accounting fees

To maximize these deductions and make the smartest moves when it comes to preparing your taxes, it is best to work with your accountant. That being said, the upshot is that if you are fastidious with your receipts and documenting the work you put into your short-term rental, you can reap the benefits when it comes to tax season.

The Transient Occupancy Tax (TOT)

The most universal California vacation rental tax is the Transient Occupancy Tax (TOT), which applies to nearly all short-term rental properties in the state. Generally speaking, if you are accepting payment from short-term guests in a home you own, you will be responsible for collecting the TOT from them. This tax, which consists of a percentage of the nightly rental rate, must be paid to state entities to remain in good standing as a business.

There is not one TOT rate set by the state of California; rather, the TOT rates are set by local governments and thus are dependent on the location of your rental property. Typically, though, the TOT falls between 10-15% of a short-term rental’s nightly rate. For example, the San Diego TOT rate in San Diego is 10.5%, while the San Francisco occupancy tax is set at 14%.

Airbnb and Short-Term Rental Rules by Major California City

Whew! We made it through the major points of setting up your short-term rental business in California. Establishing your business and accounting for TOT, though, is only the tip of the proverbial iceberg when it comes to setting up your California business. Recall that cities throughout California have the right to establish their own rules and regulations when it comes to short-term rental properties. This can mean different permits, restrictions, and permissions all depending on what city will be host to your short-term rental business. Given this variability, you must become well-versed in your city’s regulations so that you can ensure that you are in compliance.

New Rules to Reflect a Thriving Market

Part of these variations in short-term rental regulations across California is owed to the rapid rise of the short-term rental industry amid previously lax (or non-existent) municipal regulations.

When Airbnb entered the market, the industry took off. Airbnb alone reported more than 300 million guest check-ins in its first decade of business. Given that fast-paced growth, it was not surprising that local growing pains would follow. Local communities, particularly those popular with tourists, at times found themselves inundated with short-term renters.

Accordingly, in an effort to foster short-term rental that meshed seamlessly with their neighborhoods and provided the optimum experience for guests, many California cities began to adopt regulations to manage the market. These new rules were not so much to punish travelers (“guests”) or short-term rental owners (“hosts”), but rather to establish a level playing field to ensure the safety and satisfaction of guests, hosts, and their larger communities.

Generally Shared Rules and Regulations Across California

First, let’s cover the points that are most often shared between short-term rental ordinances. Generally speaking, most major California cities include rules and regulations such as:

City Registration and Fees

The vast majority of cities in California require short-term rental businesses to register either or both their business and their properties with the city. These applications often are accompanied by fees, which vary widely depending on the municipality.

Occupancy Rules

Many California city ordinances agree that short-term rentals need also to be primary residences. The definition of a primary residence varies between municipalities, but generally speaking, it means that you live full-time at your short-term rental address for at least a portion of the year (anywhere from 60 days to 9 months). Some cities also restrict such properties by:

  • Dwelling type: not all properties are considered equal in the eyes of short-term rental ordinances. Many cities, for example, place restrictions on the percentage of short-term rental units in a given multi-unit residential complex. Others prohibit such rentals housed in certain accessory structures, like attics or pool houses.

  • Dwelling location: In larger and more populous (or popular) locations, cities tend to restrict short-term rental properties to specific zones or districts of the city.

  • Occupant number: capping capacity is also a common theme among short-term rental legislation in California. While these rules can vary, generally speaking, California cities cap occupancy in a given rental unit to two adults per bedroom (up to a total of 10 adults per unit).

  • Minimum stay length: several California cities mandate that short-term rental reservations must meet a minimum number of days. Other cities use these minimums to eliminate the entire market by stating the minimum stay length is weeks -or months- long.

Promote Safety

Guests in a short-term rental property expect safety and security in their accommodations, so many California ordinances stipulate best practices when it comes to promoting safety. These typically include:

  • Clearly stated emergency information: this can include signs indicating the location of fire extinguishers or emergency exits throughout the short-term rental unit.

  • Designated contact person: many municipalities mandate that you elect a local contact person who will be “on-call” in case there are any issues with the short-term rental. This contact person is particularly important if your city allows un-hosted short-term rentals or if you will be far away for a given time.

  • Meets all local building and safety codes: keeping up with the maintenance for your short-term rental is imperative, as many California cities include requirements relating to maintenance in their laws. These regulations require that you keep all rental units up to code.

Promote Neighborliness

Also central to many California municipal codes relating to short-term rentals are articles that encourage the wellbeing of the overall neighborhood. These regulations can include restrictions on:

  • Noise: many California cities require short-term rentals to follow the rules of local noise ordinances
  • Parking: some California cities, particularly those already plagued by car congestion, enforce parking limitations or restrictions for such rental properties
  • Trash: several cities in California also impose garbage guidelines for short-term rental units.

Now, let’s look at some of the major cities in California to get a sense of how their short-term rental requirements vary. This city-by-city review will expand on these general points by noting the key unique factors of each municipality’s codes when it comes to short-term rentals. Consider these variations, additions, and exceptions as further steps you’ll need to take beyond the general guidelines outlined earlier.

Los Angeles Airbnb Rules

According to the Los Angeles Daily News, the “City of Angels” has rocketed to the rank of the fourth-best city for new Airbnb hosts in 2021, which has led many to ask: “can I Airbnb my apartment in Los Angeles”?

The short answer is yes, but setting up your short-term rental and ensuring you are meeting the Airbnb laws in Los Angeles. While there is not a requirement to register your short-term rental business with the city, Los Angeles does mandate that rental owners take a few important steps as set out in the Home Sharing Ordinance (CF 14-1635-S2):

Register Your Short-Term Rental for Your Home Sharing Registration Number

To make your listing official, you’ll need to register your home with the city to acquire your Home Sharing Registration (HSR) number. These applications can be completed online and require an application fee of $89. Once approved, you will receive an eight-digit registration number (HSR##-######) that you must list on any short-term rental listing sites like Airbnb. While you wait for your approval, the city will provide you with a temporary number to ensure you are within compliance. Once approved, your HSR number is valid for one year but can be renewed.

Meet the City Requirements for an Approved Property

As part of your registration for your HSR number, you will need to confirm the eligibility of your property. This means you will need to show proof of:

Primary Residency

Los Angeles requires that your short-term rental property is your primary residence and that you rent it out for no more than 120 nights per year. Proof of residency can be shown through official documents that bear your primary address. These might include your:

  • Driver’s license
  • Insurance bill
  • Paystub
  • Voter registration card

Renters and owners alike can list their Los Angeles short-term rental properties provided the following two caveats are kept in mind:

  • If you rent the property, you will need to acquire a signed affidavit from your landlord that approves your use of the space as a short-term rental.
  • The Los Angeles Rent Stabilization Ordinance (RSO) prohibits any property that falls under its jurisdiction to be used for a short-term rental business. The vast majority of Los Angeles single-family homes built before the year 1978 fall into this category, so make sure to double-check the status of your property before applying.
TOT Registration Certificate

Los Angeles requires that all short-term rental properties register for a TOT Registration Certificate with the Department of Finance. The only way to avoid TOT in Los Angeles is to allow rentals of 30 days or more in length. If this is the case for your short-term rental property, you will need to complete the city’s TOT Exemption Form.

Extended Home-Sharing in Los Angeles

Los Angeles caps the number of nights eligible for a given short-term rental to 120 per calendar year. If, however, you want to rent your property for more than the maximum of 120 nights, you can apply for extended home-sharing. To complete this application, you must be able to prove the following criteria:

  • You’ve had a valid HSR for at least six months or have already hosted for a minimum of 60 days
  • You can show that you’ve notified your neighboring occupants by mail to inform them of your intentions
  • You have not had more than one citation issued against your short-term rental
  • You have never had your HSR number suspended or revoked

In addition to meeting these requirements, those who wish to apply for an extended home-sharing permit in Los Angeles should prepare themselves for some substantial application fees. While the fee for the home-sharing permit and its renewal is only $89, the extended home-sharing permit comes with an additional fee of $850. If an extended home-sharing permit application requires additional “discretionary review,” the fee grows exponentially to $5,660.

Long Beach Airbnb Laws

Compared to many of California’s other metropolitan areas, the city of Long Beach offers a relatively liberal policy when it comes to short-term rentals.

Namely, unlike many of its Californian counterparts, the city allows for hosted and unhosted rentals (meaning you are not limited to your primary residence). That being said, many of the same regulations are in place (as outlined in City Ordinance 20-0045):

Register Your Short-Term Rental Annually

You’ll need to register your short-term rental property in Long Beach each year at a cost of $250 per year. Your registration number provided by the city will need to be listed on all promotional or advertising listings for the property to ensure your compliance.

Meet the City Requirements

As part of your registration for your Short-Term Rental Certificate number, you will need to confirm the eligibility of your property. This means you will need to show proof of:

Residency

If your short-term rental property is your primary residence, you will need to furnish proof in the form of official documents (e.g., driver’s license, loan documents, voter registration card). If your property is not your primary residence but is held by your short-term rental LLC, you will need to provide a notarized document that states you have permission to make decisions on behalf of the business. In either scenario, if you are a renter or tenant, you will also need to furnish a Property Owner Authorization that states the owner/landlord approves of the use of the property for short-term rentals.

Dwelling Type

Long Beach currently only allows short-term rentals in single-family homes, condominiums, and apartment units in a residential complex, as well as maids’ quarters and guest houses. Short-term rentals cannot be hosted in pool houses, casitas, garages, or other outbuildings.

Capacity Cap

Long Beach mandates maximum numbers of short-term rental units in a given residential complex as follows:

  • A 2-10 unit building may have 1 short-term rental.
  • An 11-50 unit building may have up to 10% short-term rentals.
  • A 51-100 unit building may have up to 12% short-term rentals.
  • A 101+ unit building may have up to 15% short-term rentals.

Long Beach also caps the number of guests that can stay in a short-term rental unit at 10 adults (or 2 persons per bedroom).

Oakland Airbnb Regulations

Perhaps presenting some of the most stringent short-term rental requirements in all of California, Oakland Airbnb regulations require more attention.

While Oakland does not mandate a maximum number of rentable nights in a calendar year, their city code breaks down the usage of properties into four main categories:

  • Permanent Residential Property: properties that are occupied on a weekly basis or longer.
  • Semi-Transient Residential Property: properties that are occupied mostly as permanent residential properties but that include up to 30% owned by one business and occupied on a basis of less than a week in length.
  • Bed and Breakfast Residential Property: properties that host guests for
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