Bill allows homeowners to rent out primary residence longer and still pay lower tax rate
06/09/2014 12:22 PM
06/09/2014 12:40 PM
Residents will be able to rent out their primary homes for more days of the year and not pay the higher tax rate if Gov. Nikki Haley signs a bill that Legislators approved this week.
Homeowners will be able to rent out their properties for up to 72 days and still pay the 4 percent owner-occupied tax rate instead of the 6 percent rate for second homes and rental properties. That’s enough time to take advantage of rentals during the summer tourism season, and is a much longer rental period than the previous 14 days.
The shift, though it will be in place statewide, will have the greatest affect on coastal counties such as Horry and Georgetown, where there’s demand for rental units during the summer. Some anticipate between 200 and 400 homeowners may take advantage of it.
The bill comes as a relief to a number of homeowners along the coast who have relied on revenue from renting their properties out during the summer to cover the rising costs of taxes and insurance, though some governments have concerns about losing the revenue from the higher tax rate.
Betty Jordan of Garden City Beach is one of those homeowners who urged local and state leaders to do something after she was hit with a tax bill for 2013 that was $7,500 more than the previous year.
“That’s a big difference,” she said.
Jordan, who is retired, would stay with relatives while renting out for the summer the home her and her husband had built in 1978. She needs the revenue to help pay for property taxes and insurance, which have jumped through the years.
“It helped me so much,” she said. “It was really a life saver for me.”
Concerns about the tax rate for rentals grew after a 2012 ruling by the S.C. Court of Appeals. A couple in Hilton Head Island rented out their primary residence for 91 days during the summer 2008 – they earned $76,500 – but wanted to still claim the 4 percent tax assessment. The appeals court ruled that they were no longer eligible for the lower rate because the house was rented out for more than 14 days.
South Carolina has two tax assessment rates for homes: 4 percent for owner-occupied homes, which cannot be rented out for more than 14 days, and 6 percent for second homes, investment property and properties that are rented out for more than two weeks.
Local representatives tried unsuccessfully last year to move the bill forward. Initially the legislation would have allowed homeowners to rent out their properties for up to 100 days and still pay the lower rate, but it was reduced to 72 days as it worked through the process -- a period that would still allow homeowners to take advantage of the in-demand summer tourist season.
Sen. Ray Cleary, R-Murrells Inlet, who sponsored the bill, said this isn’t a move to help the wealthy, rather those homeowners who need the extra income just to pay the basic costs, including skyrocketing wind and flood insurance.
“It’s for people coming off the recession, their incomes aren’t what they used to be,” Cleary said. “These are their primary residences. They are finding that all of a sudden .... they’ve got a $40,000, $50,000, $60,000 a year payment.”
Many of these homeowners pack up their personal belongings and have strangers sit on their sofas and watch their TV just to cover those costs, Cleary said.
“If you could afford to, you wouldn’t do it,” he said. “They don’t want to lose their homes.”
Pawleys Island Mayor Bill Otis lobbied for the longer rental period, appearing before the House Ways and Means Committee.
“It’s simply not right for those people,” Otis said. “It has caused a lot of anguish.”
Some of the houses on the Island have been in families for generations, and homeowners are trying to do everything they can -- including packing up and moving for the summer -- to raise revenue to cover the costs to keep their family homes, he said.
“Put yourself in the place of this person: They have been in this house for four generations. They are retired. They grew up here. Their memories are here,” Otis said. “Because of taxes and insurance and flood insurance, they are just forced -- they don’t have the income to be able to afford to keep it.”
The state’s economic analysis of the bill found that it will cost local governments about $1 million yearly in property tax revenue, as some properties that are now taxed as commercial will qualify for owner-occupied residence tax rules, The Post and Courier reported.
Horry County isn’t yet sure how much of an affect it will have on revenues, spokeswoman Lisa Bourcier said. In the past year, the county has denied about 15 legal residence requests because they were rented out more than 14 days, she said.
“We do not believe there is an accurate way to measure who may decide to extend the rental of their home beyond the 14-day limit,” she said. “We do believe this legislation may increase the number of efforts to receive the legal residence rate on second homes and will have to be policed to avoid this. Horry County is a coastal county and therefore would be an attraction to these type of rentals during summer months.”
Otis said the new legislation just restores the way the rentals and taxes were before the recent court rulings.
“This is not a new loss,” he said. “This is putting it back where it was.”
Homeowners who rent out their properties still must collect all the required taxes, including accommodations taxes, Cleary said.
Jordan, the homeowner in Garden City Beach, is just glad she’ll likely have the option of renting for the summer without getting that much bigger tax bill. She’s still crunching the numbers to decide whether the hassle of packing up her belongings and staying with relatives will be worth the rental income she’ll get.
“I’m trying to evaluate it,” she said. “I’m happy they brought it back up and they saw a need for it.”
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