Property tax break approved for people who rent out their homes

Owner-occupied homes in desirable vacation destinations such as Isle of Palms, shown here, could be rented for up to 72 days per year and still maintain the tax status of a primary residence - if Gov. Nikki Haley signs legislation changing the limit from the current 14 days.

The state Legislature has approved a tax break meant for people who live at the beach but rent out their homes for part of the year.

The bill, which awaits action by Gov. Nikki Haley, would allow people to pay "owner-occupant" property taxes even if their homes are rented out up to 72 days yearly.

Currently, homeowners pay sharply higher property taxes if they rent out their homes for more than 14 days each year because the property would be taxed as a rental property.

The 72-day rule would apply to any property in the state, but beach house rentals have been the focus of the legislation.

Lawmakers supporting the rule change said some coastal homeowners need to rent their residences for longer periods of time in order to afford soaring flood, wind and hail insurance costs.

The bill originally allowed 100 rental days but was changed to allow 72 days - roughly the length of summer vacation - as it went through a series of amendments.

Melinda Mitchell, who lives on Isle of Palms, said Haley should veto the bill because it doesn't go far enough. Mitchell said South Carolina should treat a property the same as the federal government - as a residence as long as it's rented for less than half the year.

"I usually rent my home for four to five months each year to help pay bills, including over $10,000 per year for insurance," she said.

If the home is taxed as a commercial property, Mitchell said that would add $20,000 to her tax bill.

"How is this (legislation) being sold as a tax break?" she said.

The state's economic analysis of the bill found that it will cost local governments - primarily school districts - 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 final version of the bill was approved by the House late Tuesday on a 94-6 vote. All Charleston area lawmakers who voted supported the bill. No member of the Senate voted against any version of the legislation.

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In a previous Post and Courier story Sen. Paul Thurmond, R-Charleston, who is among the bill's co-sponsors, said the issue boils down to the intent of the property tax rules for owner-occupied properties.

"Somebody who still intends for the home to be their primary residence should be able to leave for a while (and rent it out)," Thurmond said.

The legislation would essentially undo a series of court rulings that found homeowners should lose their preferential property tax status if they rent their home for more than 14 days.

In April the state Supreme Court declined to review a state Court of Appeals ruling, which upheld Beaufort County's decision to deny owner-occupied property tax status to a family that earned $76,500 in 2008 by renting out their Hilton Head residence for 91 days. In that case, there was no disagreement that the house was the family's primary residence, but the court agreed that higher property tax rules applied because of the length of time the home was rented.

Bill sponsor Sen. Ray Cleary, R-Georgetown, said last week that some people need to leave their homes at the beach and rent inexpensive places inland during the summer, so that they can rent out their beach homes in order to pay the insurance costs.

Cleary said the legislation is not a tax break for wealthy people because they don't need to rent out their homes.

Reach David Slade at 937-5552.