Indiana may be best known for its capital city of Indianapolis, world-class sporting events, and picturesque small towns, but it’s also a growing market for short-term rentals. Whether guests are attending the Indianapolis 500, visiting college campuses in Bloomington, or enjoying lakefront retreats in the northern part of the state, the Hoosier State sees consistent demand for temporary lodging. While Indiana law does not impose one overarching set of rules for short-term rentals, local governments typically have their own regulations and tax requirements. This article explores key considerations for operating an Airbnb or similar vacation rental in Indiana, covering both state-level guidelines and local nuances.
Indiana’s Definition of a Short-Term Rental
Indiana does not prescribe a single, universal definition of a “short-term rental” under state law. In many cities and counties, a short-term rental is understood to be a stay under 30 days, though specific rules can vary by jurisdiction. A 2018 state law (House Bill 1036) places some limits on how municipalities can outright ban short-term rentals, protecting a homeowner’s right to list their property. However, local governments can still require certain permits, enforce zoning laws, and collect lodging taxes. Because local variations exist, property owners should confirm whether their municipality has a specific threshold for what qualifies as transient lodging or short-term stays.
Starting a Short-Term Rental Business in Indiana
Most hosts in Indiana begin by ensuring they understand any tax obligations at the state level, then examining the local laws in their specific city or county. At a minimum, you should confirm if you need:
- A general business license or registration from your local municipality if short-term rental income exceeds a certain threshold.
- A permit or inspection for properties within certain zoning districts.
- Permission from any homeowners association (HOA) or condo board if your property is in a community that might restrict rentals under 30 days.
Additionally, forming a legal entity (such as an LLC) is optional unless your local government or lender requires it for liability reasons. Since no single statute covers every short-term rental scenario in Indiana, hosts must stay proactive in checking local ordinances.
Short-Term Rental Licensing Requirement in Indiana
Indiana does not offer a single statewide short-term rental license. Instead, licensing or permit requirements are determined city by city. Larger urban areas or tourist destinations may implement a local permit process, safety inspections, or occupancy limits. Smaller towns or rural counties may have fewer formalities, focusing primarily on collecting local taxes and ensuring your property meets basic safety and building codes.
Because compliance can vary widely, prospective hosts should visit their city clerk’s office or local planning department website to verify if short-term rentals require a separate license, regular renewals, or a specific application to operate legally. Failing to obtain these approvals can lead to warnings or fines, depending on local enforcement practices.
Indiana Short-Term Rental Taxes
The primary tax consideration for short-term rental hosts in Indiana is the state sales tax, which typically applies to accommodations of fewer than 30 days. The state sales tax rate is 7%. On top of that, many counties, cities, or tourism districts impose a County Innkeeper’s Tax (also called a lodging or inn tax) that can range from 3% to 10%, depending on the location. If a booking platform does not automatically collect these taxes, you must register with the Indiana Department of Revenue for sales tax purposes and with local authorities for any applicable innkeeper’s tax.
Keeping thorough records of nightly rates, cleaning fees, and other charges helps ensure accurate reporting. You should also note that some municipalities require lodging tax filings on a monthly or quarterly basis. Submitting late or underpaying can result in penalties and interest, so confirming the correct rates and filing schedules at both state and local levels is crucial.
Vacation Rental Tax Deductions
Federal and potential state-level tax deductions can significantly reduce your overall tax burden if you rent out your Indiana property more than 14 days annually. Deductions often include mortgage interest, property taxes, insurance, utilities, maintenance costs, and depreciation of the dwelling and furnishings. Because each expense must be properly allocated to rental use, maintaining clear and accurate documentation is essential. You should also consult the latest IRS guidelines or speak with a professional tax advisor to confirm which deductions apply to your specific situation.
Short-Term Rental Regulations by Major Locations in Indiana
Indianapolis
As the state’s capital and a major sports and cultural hub, Indianapolis sees high demand for short-term rentals. While the city does not currently enforce a specialized short-term rental permit, hosts must adhere to local zoning rules and any relevant neighborhood regulations. Indianapolis collects a Marion County innkeeper’s tax that adds to the state sales tax. Hosts who list properties on Airbnb or other platforms should confirm if the platform automatically handles these taxes. If not, you must register with the state and county to remit them yourself.
Bloomington
Home to Indiana University, Bloomington attracts a steady influx of academic visitors, sports fans, and cultural travelers. The city has generally allowed short-term rentals but closely monitors compliance with safety codes in residential areas. Bloomington and Monroe County levy a local innkeeper’s tax, on top of the 7% state sales tax. If you operate a short-term rental within the city limits, check whether you need a local business license or a zoning certificate if you earn above a certain amount in rental income.
Fort Wayne
Fort Wayne, the state’s second-largest city, has fewer formal restrictions on short-term rentals, treating them similarly to other types of lodging from a tax standpoint. While operators must collect state sales tax and any local lodging taxes (if applicable), the city does not maintain a robust permitting process specifically for Airbnb properties. However, code enforcement officers can respond to noise, parking, or other nuisance complaints related to short-term stays. Checking neighborhood or HOA covenants is also recommended, as some developments place limitations on transient rentals.
South Bend
South Bend, known for its proximity to the University of Notre Dame, sees spikes in short-term rental demand during major sporting events and graduation season. While there is no outright ban, city officials advise hosts to ensure they comply with building safety rules and tax obligations. The county innkeeper’s tax typically applies, and property owners must remit this tax unless the booking platform does it on their behalf. Keeping track of any city council updates is wise, as local governments may adjust regulations to address housing concerns around campus communities.
Evansville
Situated in southwestern Indiana, Evansville does not enforce a dedicated short-term rental ordinance at the time of writing. Nevertheless, hosts should be aware of local laws that require a general business license if their earnings surpass certain thresholds. Vanderburgh County collects lodging taxes that, combined with state sales tax, can result in an overall rate exceeding 10%. As with other Indiana cities, owners should keep current on any potential new policies by following local government announcements.
Takeaway
Indiana’s mix of Midwestern hospitality, metropolitan growth, and collegiate communities makes it a reliable market for Airbnb and other short-term rentals. However, the state’s decentralized regulatory approach means hosts must stay informed about local permit requirements, zoning codes, and lodging tax obligations in their chosen city or county. Failing to adhere to state sales tax and county innkeeper’s tax rules can result in penalties, so careful record-keeping and timely remittances are key.
By researching city-specific guidelines, confirming HOA or condo board allowances, and registering with tax authorities where needed, you can create a compliant and profitable short-term rental operation. As Indiana continues to draw visitors for sports events, cultural festivals, and business gatherings, responsible hosts who keep up with evolving regulations will be well positioned to succeed in the Hoosier State’s dynamic rental market.
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