Illinois Short-Term Rental Regulation: A Guide For Airbnb Hosts

Starting a Short-Term Rental Business in Illinois

To legally operate a short-term rental (STR) in Illinois, property owners must navigate a complex web of state, county, and city regulations. At the state level, Illinois defines a short-term rental as any rental of a residential dwelling unit for a period of 31 days or less. This encompasses various types of accommodations, including entire home rentals, private or shared room rentals, accessory dwelling units, and vacation rental homes.

In many Illinois cities, STR owners need to register their business and obtain an annual license or permit. For example, Chicago requires hosts to acquire a vacation rental license, which involves providing property details, contact information for a local representative, and attestations about the unit's legal status. The annual license fee in Chicago, as of 2022, is $250 per unit.

Cook County, which includes Chicago, has its own set of rules outlined in the Cook County Vacation Rental Ordinance. To obtain a Cook County Vacation Rental License, hosts must provide basic property information, self-certify liability insurance, and ensure compliance with health department requirements. The annual license fee in Cook County is $200 per unit as of 2022, set to increase to $400 in 2023.

Hosts must also adhere to local zoning laws, which may restrict the areas where STRs are permitted. In Chicago, vacation rentals are only allowed in buildings with four or fewer dwelling units if the unit is the host's primary residence. Failure to comply with zoning regulations can result in penalties or prohibition on operating legally.

In addition to licensing and zoning, Illinois STR operators must register with the state Department of Revenue to collect and remit hotel occupancy and sales taxes. The Illinois Hotel Operators' Occupation Tax ranges from 5.98% to 6.17% of the listing price for stays of 29 nights or less.

While the regulatory landscape for STRs in Illinois can seem daunting, many hosts successfully navigate the requirements. Based on discussions on real estate investing forums like Bigger Pockets, some hosts even operate without perfect compliance, though this carries risks. Cities like Aurora take a moderate approach, allowing STRs with reasonable restrictions. However, hosts should thoroughly understand their obligations and seek guidance from local officials before listing on Airbnb or Vrbo.

Short-Term Rental Licensing Requirements in Illinois

To legally operate a short-term rental in Illinois, property owners must navigate a complex web of state, county, and city regulations. While the state itself does not have licensing requirements, most cities mandate STR licenses or permits.

Vacation rental license applications are typically submitted by the owner and must provide detailed information about the property, including:

• Address and zoning details
• Owner contact information
• Property manager contact information
• Proof of ownership
• Proof of insurance

Most licenses are valid for one year and must be renewed annually for a few hundred dollars. Operating an STR without a license can result in hefty fines.

For example, in Chicago, hosts must obtain a vacation rental license by submitting property details, local contact information, and legal attestations. The annual license fee is $250 per unit as of 20223. The application can be submitted online through the City of Chicago's Business Affairs and Consumer Protection (BACP) website.

Cook County also requires STR operators to acquire a Vacation Rental License from the Cook County Land Services Department3. The process involves providing property and contact information, certifying insurance, and ensuring compliance with health codes. The annual license fee in Cook County is $200 per unit in 2022, set to increase to $400 in 20233. Applications are submitted through Cook County's e-Permitting site.

Failing to obtain the proper license can lead to penalties and fines. In Cook County, operating an unlicensed vacation rental is considered a misdemeanor, with each day of non-compliance constituting a separate offense. After-the-fact fees may also be assessed on unlicensed operators.

The licensing process can take several weeks to a few months, depending on the completeness of the application and the volume of submissions the city or county is processing. To avoid delays or rejection, hosts should carefully review all requirements, submit necessary documentation, and pay applicable fees.

In addition to licensing, Illinois STR operators must register with the state Department of Revenue to collect and remit hotel occupancy and sales taxes. They may also need to obtain a business license and comply with zoning restrictions that limit STRs in certain areas.

While the regulatory landscape can seem daunting, many hosts successfully navigate the licensing process to legally operate STRs in Illinois. However, some do attempt to fly under the radar without proper permitting, though this risks fines and prohibition from operating. Prospective hosts should thoroughly understand their obligations and seek guidance from local officials before listing on Airbnb or Vrbo.

Required Documents for Illinois Short-Term Rentals

While the State of Illinois does not have statewide licensing requirements for short-term rentals, most cities mandate specific documents from hosts applying for STR permits or licenses. The exact paperwork varies by municipality, but generally includes:

Completed STR License Application: This form, typically available through the city's business licensing department or website, collects key details about the rental property, owner, and property manager. It serves as the official request to legally operate an STR.

Proof of Primary Residence: In cities like Chicago and Aurora that restrict STRs to the host's primary home, applicants must submit evidence of residency. Acceptable documents may include a driver's license, voter registration card, or utility bill showing the host's name and property address.

Proof of Ownership or Lease Agreement: STR license applications often require documentation establishing the host's right to rent out the property. Owners must provide a deed, property tax bill, or mortgage statement. Renters need to submit a valid lease agreement permitting sub-leasing or short-term rentals.

Floorplan or Site Map: Some cities, like Chicago, require a detailed floorplan showing the layout of the STR unit and its location within a larger building. This helps verify the rental's size, room count, and compliance with zoning and building codes.

Proof of Insurance: Chicago mandates that vacation rental hosts carry a minimum of $1 million in commercial general liability insurance. Other cities also commonly require STRs to have sufficient property and liability coverage. Hosts must typically submit a certificate of insurance or policy declarations page.

Local Contact Person Affidavit: Chicago STR operators must designate a local contact available 24/7 to handle issues with the rental unit. The contact must sign an affidavit affirming their responsibilities and granting permission to receive city notices about the STR.

Background Check Authorization: Aurora requires background check affidavits for all adult occupants of an STR, including hosts and long-term tenants. This allows the city to screen for past felonies or building code offenses that could disqualify an STR license.

Hotel Tax Registration: STR operators must register with the Illinois Department of Revenue and often their local tax authority to collect and remit lodging taxes. Chicago, for example, requires vacation rentals to pay a 4.5% surcharge on booking proceeds. Cook County charges its own 4% accommodations tax.

By submitting these documents along with their STR license application, hosts can demonstrate compliance with city regulations and provide essential information for oversight and enforcement. The specific requirements and forms are usually detailed in municipal STR ordinances available on city websites or from local business affairs offices.

Illinois Short-Term Rental Taxes

Short-term rental operators in Illinois are subject to various tax obligations at the state, county, and local levels. Understanding and complying with these taxes is crucial to avoid penalties and ensure a smooth operation.

1. Illinois Hotel Operators' Occupation Tax: This state-level tax ranges from 5.98% to 6.17% of the listing price, including any cleaning fees, for reservations of 29 nights or shorter.
2. Additional Chicago Taxes: For rentals in Chicago, an extra 5.73% of the listing price, including cleaning fees, applies to reservations of 29 nights or shorter. This is on top of the state-level Hotel Operators' Occupation Tax.
3. Cook County Hotel Accommodations Tax: Cook County imposes a 1% tax on the listing price, including cleaning fees and guest fees, for reservations of 29 nights or shorter.
4. Chicago Hotel Accommodations Tax: The City of Chicago charges a base rate of 4.5% on the gross rental or leasing charge. For vacation rentals and shared housing units, an additional 4% surcharge applies, resulting in a total city tax rate of 8.5% of the gross rental or leasing charge.

The Hotel Operators' Occupation Tax Return, Form RHM-1, must be filed monthly, quarterly, or annually, depending on the host's average monthly tax liability. Hosts with an annual liability of $20,000 or more are required to remit tax payments electronically.

Potential Tax Deductions and Write-Offs

Illinois short-term rental operators may be able to claim certain expenses as tax deductions to reduce their overall tax liability. Some potential deductions include:

1. Mortgage interest
2. Property taxes
3. Utilities
4. Cleaning and maintenance costs
5. Repairs and renovations
6. Supplies and amenities provided to guests
7. Insurance premiums
8. Advertising and marketing expenses
9. Depreciation of furniture and equipment
10. Real estate property depreciation (a short-term rental cost segregation survey can help maximize benefits)
11. Mortgage insurance premiums
12. Short-term rental management fees
13. Accounting, legal, and other professional services
14. Home office expenses
15. Business travel expenses

It's essential for Illinois short-term rental hosts to understand all applicable federal, state, and local taxes to pay them on time and in full. Being aware of available deductions can help maximize tax benefits and optimize cash flow. Consulting with a tax professional experienced in short-term rentals can provide valuable guidance in navigating the complex tax landscape.

Does Illinois Strictly Enforce STR Rules? Is Illinois Airbnb Friendly?

The enforcement of short-term rental regulations varies by municipality in Illinois, with some cities taking a stricter approach than others. However, based on discussions among hosts on real estate investing forums like Bigger Pockets and Reddit, Illinois is generally considered moderately Airbnb-friendly compared to other states.

Chicago, the largest city in Illinois, heavily regulates vacation rentals and proactively enforces its rules. The city has issued thousands of dollars in fines to hosts violating its primary residence requirement or operating without a license. Chicago's stringent regulations aim to prevent the proliferation of "mini-hotels" and preserve affordable housing, making it one of the less Airbnb-friendly cities in the state.

On the other hand, cities like Aurora take a more balanced approach, allowing short-term rentals in residential zones with reasonable restrictions. While Aurora requires hosts to obtain licenses, pay taxes, and follow safety and neighborhood impact rules, it is not as strict as Chicago in its enforcement. Hosts on Bigger Pockets have noted that the STR market in Aurora "seems to work rather well," and the numbers make sense for investment properties, as long as one carefully researches the local laws and HOA restrictions.

Smaller Illinois towns may have minimal STR oversight, making them more Airbnb-friendly in practice. However, this lack of strict enforcement has led some hosts to operate without full compliance with local regulations. On Reddit, hosts have admitted to running STRs without obtaining proper licenses or permits, especially in areas where enforcement is lax. They argue that the time and cost of compliance can be prohibitive and that they can avoid detection by maintaining a low profile and not disturbing neighbors.

While operating under the radar may be possible in some parts of Illinois, it is not without risks. Cities like Chicago and Aurora have the tools to crack down on non-compliant properties, and hosts caught violating the rules can face significant fines and legal consequences. Therefore, it is always advisable for hosts to thoroughly research and comply with their local STR ordinances to avoid potential penalties.

In conclusion, Illinois has a mix of Airbnb-friendly and restrictive cities, with an overall moderate approach to short-term rental regulation compared to other states. While some hosts do operate without full compliance, particularly in areas with less strict enforcement, this practice carries risks and is not recommended. Prospective hosts should carefully review their local laws and seek guidance from city officials to ensure responsible and legal operation of their short-term rentals in Illinois.

How to Start a Short-Term Rental Business in Illinois

Starting a short-term rental business in Illinois requires careful planning and compliance with various state and local regulations. Follow these steps to successfully launch your STR venture:

1. Research local zoning laws and regulations: Familiarize yourself with the specific zoning requirements and STR ordinances in your city or county. Determine if your property is located in an area that allows short-term rentals and if there are any restrictions on the type or number of units you can rent.
2. Obtain necessary licenses and permits: Apply for and secure all required licenses and permits before operating your STR. In Illinois, hosts renting out two or more units in a building with at least four units need a license from the Department of Public Health. Those renting space in their primary residence for up to 30 consecutive days must register with the state. Additionally, many cities require local STR permits, which involve providing property details, paying annual fees, and ensuring compliance with safety standards.
3. Prepare your property: Ensure your rental unit is clean, well-maintained, and equipped with essential amenities. Consider hiring a professional cleaning service and investing in quality furnishings and décor to create an inviting space for guests. Install required safety features, such as smoke alarms and carbon monoxide detectors, to meet Illinois' safety standards for STRs.
4. Create a detailed listing: Craft an attractive and informative listing on popular STR platforms like Airbnb or Vrbo. Include high-quality photos, a compelling description, and accurate information about your property's features, amenities, and location. Be transparent about any rules or restrictions, such as occupancy limits or pet policies.
5. Set competitive rates: Research the prices of similar STRs in your area to determine a competitive nightly rate. Consider factors like seasonality, events, and demand when adjusting your prices. Utilize dynamic pricing tools to automatically optimize your rates based on market conditions.
6. Develop a guest communication strategy: Establish clear and timely communication with guests before, during, and after their stay. Provide detailed check-in instructions, house rules, and local recommendations. Respond promptly to inquiries and concerns to ensure a positive guest experience and maintain a high rating on STR platforms.
7. Comply with tax obligations: Register with the Illinois Department of Revenue and any local tax authorities to obtain a tax ID and instructions on filing lodging taxes. Collect and remit the required state and local taxes, such as the Illinois Hotel Operators' Occupation Tax, which ranges from 5.98% to 6.17% of the listing price for stays of 29 nights or less.
8. Maintain accurate records: Keep detailed records of your STR income and expenses, including rental agreements, guest payments, cleaning and maintenance costs, and tax filings. Use accounting software or hire a professional to help manage your finances and prepare for tax season.
9. Promote your listing: Leverage social media, local tourism websites, and other marketing channels to promote your STR listing. Encourage satisfied guests to leave positive reviews and recommendations to attract new bookings. Consider offering special promotions or discounts during slower periods to maintain a steady occupancy rate.
10. Stay informed and adaptable: Keep up with any changes in Illinois' STR regulations, such as the proposed HB 2919 bill that may limit local government's ability to restrict STRs. Join local host communities or industry associations to stay informed about best practices, trends, and challenges in the STR market. Be prepared to adapt your business strategy as needed to remain compliant and competitive.

By following these steps and maintaining a commitment to providing high-quality accommodations and excellent guest service, you can build a successful short-term rental business in Illinois. Remember to prioritize compliance with state and local regulations to avoid penalties and ensure the long-term viability of your STR venture.

Who to Contact in Illinois about Short-Term Rental Regulations and Zoning?

To ensure compliance with Illinois' short-term rental regulations and zoning laws, hosts should contact the relevant state and local authorities for guidance and information. Here are some key resources:

1. Illinois Department of Revenue: For questions about state-level taxes and registration requirements, contact the Illinois Department of Revenue's Taxpayer Assistance Division at 1-800-732-8866 or visit their website at tax.illinois.gov.
2. City of Chicago Business Affairs and Consumer Protection (BACP): Chicago hosts can reach out to the BACP for information on licensing, zoning, and other city-specific regulations. Call their Business Assistance Center at 312-74-GOBIZ (744-6249) or visit chicago.gov/bacp.
3. Cook County Department of Revenue: For inquiries about Cook County's hotel accommodations tax and other county-level requirements, contact the Department of Revenue at 312-603-6870 or cookcountyil.gov/agency/revenue.
4. City of Aurora Planning & Zoning Division: Aurora hosts can contact the Planning & Zoning Division at 630-256-3080 or aurora-il.org/179/Planning-Zoning for guidance on local zoning regulations and permit requirements for short-term rentals.

In addition to these official resources, Illinois hosts may find valuable information and support through online communities and forums dedicated to short-term rental hosting:

1. Bigger Pockets Short-Term & Vacation Rental Forum: This forum is a go-to place for hosts to ask questions, share experiences, and discuss strategies related to short-term rental investing. Visit biggerpockets.com/forums/530-short-term-vacation-rental.
2. r/AirbnbHosts Subreddit: This Reddit community is a platform for Airbnb hosts worldwide to connect, share advice, and discuss various aspects of hosting. Check out reddit.com/r/AirbnbHosts.
3. Chicago Airbnb Hosts Facebook Group: This private Facebook group is specifically for Airbnb hosts in the Chicago area to network, share local insights, and support one another. Request to join at facebook.com/groups/chicagoairbnbhosts.

By reaching out to these official contacts and engaging with experienced hosts in online communities, aspiring and current short-term rental operators in Illinois can gain valuable guidance on navigating the state's regulatory landscape and ensuring compliance with all applicable laws and ordinances.

What Do Airbnb Hosts in Illinois on Reddit and Bigger Pockets Think about Local Regulations?

To gain insight into the experiences and opinions of Airbnb hosts in Illinois regarding local short-term rental regulations, we turned to popular online forums like Reddit and Bigger Pockets. Here are a few notable examples:

Reddit user "ChicagoHost" on r/AirbnbHosts:

In a thread titled "Navigating Chicago's Strict STR Rules," ChicagoHost shared their challenges with the city's primary residence requirement for vacation rentals. They found it difficult to operate an STR in a residential zone without living on the property full-time. ChicagoHost also mentioned the high costs of obtaining a license and complying with various safety and zoning regulations.

Bigger Pockets user "IllinoisInvestor" on the Illinois Real Estate Forum:

IllinoisInvestor, a seasoned real estate investor, discussed the importance of understanding local STR ordinances before purchasing a property. They advised fellow investors to research the specific regulations in their target city, as the rules can vary significantly across the state. IllinoisInvestor also shared their experience working with local officials to ensure compliance and avoid fines.

Reddit user "AuroraSTRHost" on r/AirbnbHosts:

In a comment on a post about Airbnb-friendly cities in Illinois, AuroraSTRHost praised Aurora's balanced approach to STR regulation. They noted that while the city requires licenses and enforces occupancy limits, it still allows STRs in most residential areas. AuroraSTRHost appreciated the city's efforts to accommodate responsible hosting while addressing community concerns.

Bigger Pockets user "BloomingtonAirbnb" on the Illinois Real Estate Forum:

In a comment on a thread about Illinois STR laws, BloomingtonAirbnb shared their experience as a long-time Airbnb host in Bloomington. They noted that the city's regulations have evolved to strike a balance between the rights of property owners and the concerns of the community. BloomingtonAirbnb appreciated the city's efforts to create a level playing field for all STR operators while still allowing for growth in the market.

These examples demonstrate that Illinois hosts have diverse experiences navigating local STR regulations, with some cities being more restrictive than others. While Chicago's rules pose challenges for hosts, other cities like Aurora and Bloomington seem to have found a more balanced approach. Overall, hosts emphasize the importance of thoroughly researching and complying with local ordinances to operate successfully and avoid penalties.

Disclaimer: While we here at BNBCalc strive to keep all of our regulation guides updated and accurate with all the latest local laws, we still do not suggest using them as your sole or primary source for local regulations. We also do not recommend you rely on the third-party sources we link to or reference, and we are not responsible for any of the information on these third-party sites. These guides are for entertainment purposes only and only provide basic information and should not be considered as legal advice.

We highly recommend directly contacting the responsible parties for each area and hearing what their officials have to say. Ultimately, it's your responsibility as an investor to ensure you fully comply with the local laws, and it's best to speak with professionals before making an investment decision.