Indiana Short-Term Rental Rules: A Comprehensive Guide

Quick Answer: Indiana's Short-Term Rental Landscape

Indiana's state-level approach is hands-off. There is no statewide registration, operating license, or comprehensive preemption law. Rules are set by the governing jurisdiction: city, town, or county.

This results in significant variation. A property in Indianapolis faces a detailed permitting process with primary-residence requirements. A cabin near Lake Monroe outside Bloomington's city limits may fall under Monroe County rules instead. A condo in Carmel may be subject to HOA covenants stricter than city requirements.

The state's direct involvement is limited to taxation. Indiana collects sales tax on STR revenue, and counties collect innkeeper's tax. These obligations apply statewide.

Before listing a property in Indiana, answer these four questions:

• Is the property zoned to allow STR use?
• Does the municipality require a permit or license?
• What occupancy, parking, and noise rules apply?
• What taxes must you collect and remit, and to whom?

The following sections detail each point.

Indiana's State-Level Approach to Short-Term Rentals

No Statewide Preemption or Licensing

Indiana has no law preempting local STR regulation, nor a statewide STR registry. Local governments derive zoning and land-use authority from Indiana Code Title 36 (Local Government), granting cities, towns, and counties broad power to regulate land use (IC §36-7-4 et seq.). This authority is the primary tool municipalities use to control STRs, including defining permitted uses in residential zones.

Legislative discussions about limiting local STR restrictions, often from property-rights advocates, have occurred, but no preemption statute has passed. Consult the Indiana General Assembly's bill tracking system (iga.in.gov) for recent session activity.

State Taxation: The One Area of Direct State Involvement

Indiana imposes two taxes STR operators must handle.

Sales Tax. Indiana levies a 7% sales tax on accommodations rented for fewer than 30 days (IC §6-2.5-4-4). This applies to gross receipts from STRs. Operators must register with the Indiana Department of Revenue (IDOR) via the INBiz portal (inbiz.in.gov) to collect and remit this tax.

Innkeeper's Tax. Separate from sales tax, IC §6-9 authorizes counties to impose a local innkeeper's tax on short-term accommodations. This county-level tax, enabled by state statute, varies in rates and remittance procedures by county. Specific rates are detailed in the tax section.

Platform Collection. Platforms like Airbnb and Vrbo have voluntary collection agreements with Indiana and many counties, collecting and remitting sales tax and some innkeeper's taxes on behalf

Federal Tax Considerations

Short-term rental businesses in Indiana must navigate various federal tax implications, primarily governed by the Internal Revenue Code (IRC). Depending on the level of services provided, income may be reported on Schedule E or Schedule C. Key provisions include the 14-day rule under IRC § 280A(g), which can allow for tax-free income under specific conditions.

• Rental income from short-term rentals may be reported on Schedule E if no substantial services are provided (IRC § 469).
• If substantial services are offered (like meals or daily cleaning), income should be reported on Schedule C, classifying it as business income (IRC § 162).
• The 14-day rule (IRC § 280A(g)) allows for tax-free income if the property is rented for fewer than 15 days in a year.
• Depreciation for residential rental properties is typically over 27.5 years (IRC § 168), while properties providing substantial services may be depreciated over 39 years.
• There is no federal occupancy tax; however, state and local lodging taxes may apply, often collected through Online Travel Agencies (OTAs).

This is not tax advice — consult a CPA familiar with Short-term rentals for your specific situation.

Frequently Asked Questions

Why doesn't Indiana regulate short-term rentals at the state level?

Indiana's approach to short-term rentals is hands-off, allowing local governments to set their own regulations. This decentralized system gives municipalities the authority to manage land use and zoning without state preemption.

What laws apply to short-term rentals in Indiana?

While Indiana does not have statewide regulations for short-term rentals, local zoning and land-use laws govern their operation. Additionally, operators must comply with state tax laws, including sales tax and innkeeper's tax.

Are there any active legislative proposals regarding short-term rentals in Indiana?

There have been discussions in the Indiana General Assembly about limiting local restrictions on short-term rentals, but no preemption statute has been passed. For updates, consult the Indiana General Assembly's bill tracking system.

What do residents do given the absence of state law on short-term rentals?

Residents must navigate local regulations, which can vary significantly. They should check with their city or county planning department to understand specific permitting, zoning, and tax requirements.

How does Indiana's regulation of short-term rentals compare to neighboring states?

Unlike some neighboring states that have statewide regulations or licensing systems for short-term rentals, Indiana allows local jurisdictions to dictate the rules, leading to a more fragmented regulatory landscape.