Navigating short-term rental regulations: Zoning, licensing, insurance and lodging taxes

Written by Samantha SheltonNMLS 1647301Updated October 2026

This article is general information about land use, licensing and tax rules, not legal or tax advice. Ordinances are local and change often. Confirm the rule for your parcel with the municipality, and take ordinance questions to a Michigan attorney and tax questions to a CPA.

Owner reviewing paperwork at a lakeside cottage kitchen island while navigating short-term rental regulations

Short-term rental regulation is local, and it is four separate approvals rather than one: zoning, a license or registration, a life-safety inspection, and a tax registration. Michigan shows how little of it is federal: the state levies its 6% use tax on rooms and lodging furnished to the public on a commercial basis, excluding only accommodations rented continuously for more than 1 month, and a qualifying county may add an accommodations excise tax of up to 5%, or as much as 8% if county voters approve it.

The one federal number worth knowing before you list is the IRS minimal rental use rule: rent a dwelling unit you use as a residence fewer than 15 days in the tax year and you report no rental income and deduct no rental expenses. That rule says nothing about whether the rental is legal where the house sits. An ordinance answers that, and it can say no.

Learn the four kinds of local regime, why zoning and licensing are separate hurdles, what inspectors look for, the insurance gap, and the taxes platforms do not always remit. For demand, see short-term rental market trends; for the acquisition math, our guide to investing in short-term rentals and the Real Estate Investing guide.

Key takeaways:

Four approvals, not one: Zoning decides whether the use is allowed on your parcel, a license whether you may operate it, an inspection whether guests may sleep there, and a tax registration who remits. One city can permit the use in 1 district, cap it in a second and ban it in a third.
The 30-day line does most of the work: Michigan’s use tax reaches lodging except rooms rented for a continuous period of more than 1 month, and the state’s accommodations tax act defines a transient guest as someone staying fewer than 30 consecutive days. A longer stay is a tenancy under landlord-tenant law, not a lodging transaction.
Taxes arrive in 3 layers: Income tax on net profit, Michigan’s 6% use tax on stays of 1 month or less, and a county accommodations excise tax of up to 5% where levied, up to 8% where county voters approved it. A platform’s agreement may not cover every layer, and the gap stays with the owner.

What counts as a short-term rental, and who decides?

There is no national definition, and the line most jurisdictions draw sits at 30 days. Michigan’s Use Tax Act reaches rooms or lodging furnished to the public on a commercial basis and excludes accommodations rented continuously for more than 1 month, while the state’s accommodations tax act defines a “transient guest” as a natural person staying fewer than 30 consecutive days. Ordinances draw their own line: Holland defines a short-term rental as a dwelling unit offered for rent for less than 30 consecutive days per occupant.

The threshold matters for a second reason. Once a stay becomes a tenancy, a different body of law applies: statutory deposit limits and itemization deadlines, written notice to quit, and the requirement that a landlord use the court’s summary proceedings rather than self-help, see becoming a landlord. Choosing among applicants for those stays is a fair housing and Fair Credit Reporting Act problem, and needs written, objective criteria applied identically to everyone.

What are the four kinds of local rule you can run into?

Local regimes sort into 4 families, and knowing which one you face tells you whether the problem is paperwork or a dead end.¹

Permit and registration: You register the unit, pay a fee, name a local responsible party, pass an inspection and often display the permit number in the listing. Operating without one brings per-day fines and delisting.
Primary-residence requirements: The rule most likely to disqualify an investment property outright. It ties the right to rent to where the owner actually lives, verified against tax filings, voter registration or utility records.
Density or distance caps: A fixed number of licenses, a minimum separation, or both. Holland caps investor-owned short-term rentals at 25 properties with a 500-foot separation across four residential districts and has reported no openings. A new buyer hears no though the use is permitted.
Outright prohibition: Park Township’s board voted on November 10, 2022 to prohibit short-term rentals in residential zoning districts, requiring existing uses to end by October 1, 2023 with roughly 248 units then operating. Ottawa County Circuit Court rulings of November 21, 2024 and November 4, 2025 upheld it.

They stack, so work the four checks below in order.

Check	What it decides	Where to verify it
Zoning	Whether transient lodging is permitted in your district	The zoning administrator, in writing, by parcel number
License, residency and night caps	Whether you may operate, and how many nights per year	The clerk’s office or the program running the ordinance
Private restrictions	Whether a deed restriction, condo declaration or HOA bylaw bars it anyway	Recorded documents and the association, before your contingency expires
Lodging and accommodations tax	What you remit, and what the platform remits for you	State revenue department, county treasurer, the platform’s tax agreement

Why are zoning and licensing two separate hurdles?

Because they answer different questions, and clearing one grants nothing on the other. Zoning asks whether the use belongs on the land; licensing asks whether you may operate it, and on what terms. Michigan’s Zoning Enabling Act, 2006 PA 110, gives a local unit of government authority to regulate land development and establish districts by ordinance, authority held by 83 counties plus the state’s townships, cities and villages, so neighbors across a boundary routinely reach opposite answers.

A license may not survive the closing: Some ordinances treat the permit as personal and extinguish it on transfer; others allow transfer only if the buyer applies within a stated window. Ask before you waive a contingency.
Legal nonconforming status is narrow: Where an ordinance tightens, an existing use may continue, but the protection is commonly lost through a lapse in use, an expansion or a gap in licensing. A question for a Michigan attorney, not a seller’s assurance.
Private restrictions are enforced privately: A condominium declaration, deed restriction or HOA bylaw can bar nightly rental in a town that permits it, and the city will not enforce it. See navigating HOA regulations.

What life-safety and inspection requirements apply?

The inspection is where most applications stall, and the checklist is short and physical. Items vary by ordinance; these recur.

Smoke and carbon monoxide alarms: Typically required in each sleeping room, outside sleeping areas and on every level, with carbon monoxide detection where fuel-burning appliances or an attached garage exist.
Egress and escape: Bedrooms must actually be bedrooms. A finished basement room without a compliant emergency escape opening is a common failure, and the room owners most often add to the listing.
Extinguishers, exits and posted information: Many ordinances require an extinguisher, a posted evacuation diagram and maximum occupancy, and a responsible party who can reach the property within a stated time.
Parking, trash and noise conditions: License conditions rather than building code, and the terms complaints usually cite.

Michigan runs one statewide construction code, so the code answer is the same in Waterford and Traverse City while license conditions, fees and turnaround stay local. Day-to-day standards sit in rental property management, and the Institute of Real Estate Management publishes professional standards worth borrowing even for one unit.

Does homeowners insurance cover a short-term rental?

Generally not, and it is the most expensive gap owners find late.² The Insurance Information Institute is direct: standard homeowners policies do not provide any coverage for business activities conducted in the home, and renting to various guests on a regular basis is a business. Occasional rental may be handled by notifying the insurer or adding an endorsement, the Institute says, but regular short-term rental of a primary residence calls for a business policy, a hotel or bed-and-breakfast policy.

Settle 3 things in writing with a licensed agent before the first guest arrives.

Whether the policy responds to transient occupancy: A landlord policy written for a 12-month tenancy is not automatically a short-term rental policy.
What liability limit the license requires: Some ordinances set their own floor. South Haven requires applicants for its Class I short-term rental license to carry $1,000,000 in liability coverage.
What a platform’s host protection actually is: A conditional program with its own exclusions, not an insurance policy. Keep your own coverage regardless.

Financing asks its own occupancy question. Under Fannie Mae’s rules a second home must be a one-unit dwelling the borrower occupies part of the year and controls exclusively, and cannot be a rental property or subject to an agreement giving a management firm control over occupancy. Rent it nightly and it is generally underwritten as an investment property. Tell your loan officer up front.

What taxes does a short-term rental owner owe?

Three layers, independent of one another.³ Lodging taxes are owed on the stay whether or not the operation is profitable, and whether or not a license was issued.

State lodging or use tax: Michigan applies its use tax, at a total combined rate of 6%, to rooms or lodging furnished to the public on a commercial basis, a definition expressly reaching tourist homes, lodging houses, rooming houses and resort lodges and cabins. Accommodations rented continuously for more than 1 month are excluded.
County or local accommodations tax: Under Public Act 263 of 1974, as amended by 2024 PA 35, a Michigan county with a population under 600,000 that contains a city of at least 40,000 may levy an excise tax on providing accommodations to transient guests. The rate may not exceed 5% unless county voters approve it, and may never exceed 8%. In a county of 600,000 to 775,000 residents, a city or township may levy up to 2% with voter approval.
Income tax on net profit: Federal and state income tax on what is left after allowable expenses, on the return your tax professional selects.

Platform collection is the piece owners misread. Platforms remit some lodging taxes in some jurisdictions under agreements with those authorities, but rarely every state, county and local levy at a given address, and an uncovered layer is still your liability. Get the platform’s written statement of what it collects for your address, register for the rest, and keep the records.

Two federal rules shape the return. Under the IRS minimal rental use rule, renting a dwelling unit you use as a residence fewer than 15 days in the year means no reported rental income and no deducted expenses; a unit counts as used as a residence when personal use exceeds the greater of 14 days or 10% of the days you rent it at a fair rental price. Separately, an activity is not a rental activity for passive-loss purposes when the average period of customer use is 7 days or less, a line most nightly rentals cross without noticing. Both sit in the IRS rules on residential rental property and vacation homes, and both belong in front of a CPA.

What should you verify before your first booking?

Work it in order, and finish steps 1 through 3 before your inspection contingency expires.

Confirm the zoning district by parcel number, in writing. Ask the zoning administrator whether transient lodging is permitted there and on what conditions, and read the ordinance’s own day threshold and occupancy limit.
Check caps, waitlists and transferability. How many licenses exist, how many are open, whether a separation distance applies, and whether the seller’s transfers to you.
Pull the private restrictions. Deed restrictions, the condominium master deed and bylaws, and association rules bind you regardless of the ordinance.
Apply for the permit and schedule the inspection. Budget for alarms, egress corrections, signage and queue time.
Bind the right insurance in writing. Confirm the policy responds to transient occupancy and meets any liability minimum the license imposes.
Register for every tax layer. State use or lodging tax, county accommodations tax, any city levy, and the platform’s statement of what it remits.
Tell your loan officer the intended use before you lock. Occupancy type is underwritten, and it moves pricing, reserves and sometimes the program.

What Michigan short-term rental owners should know

Michigan is a local-control state, and the tension between Lansing and the resort communities has been live for years without resolving.⁴ Zoning authority sits with local government under the Michigan Zoning Enabling Act, 2006 PA 110, and as of publication Michigan had not enacted statewide preemption of local short-term rental regulation. The ordinance covering your address controls.

Preemption has been proposed repeatedly and not enacted: House Bill 4722 of 2021 would have made short-term rental a residential use permitted in all residential zones; it passed the House on October 27, 2021 by 55 to 48 and was reported from the Senate Regulatory Reform Committee on October 11, 2022, but was never enacted. House Bills 6026 and 6027 of 2026, introduced June 2, 2026 and referred to the House Committee on Government Operations, would add a statewide short-term rental registry and excise tax while amending the zoning act to clarify a prohibition on a total local ban. Pending bills are not law.
The resort corridor is where the rules bite: South Haven splits licenses into a Class I permitting unlimited rental but not more than 2 rental stays per 7-day period, and a Class II permitting 6 rental terms or 28 days per calendar year. Park Township prohibited the use in residential districts effective October 1, 2023. Traverse City, Petoskey, Charlevoix and Saugatuck each set their own.
Two taxes, two authorities: Michigan’s 6% use tax reaches any stay of 1 month or less, and a qualifying county may add an accommodations excise tax on top under Public Act 263 of 1974, up to 5%, or as much as 8% where county voters approved the higher rate. Register with Treasury and the county separately.

Because those markets price off visitor demand rather than local wages, regulation and demand move together. Align Lending’s role is narrower: we are an independent Michigan mortgage broker, not a property manager, insurance agency or law firm. We finance one- to four-unit residential property and shop investor files across competing wholesale lenders. We do not confirm that a use is permitted.

How Align helps you grow a portfolio

When a rental has built equity, a cash-out refinance or a DSCR loan may turn it into the down payment on the next one. Samantha compares those across multiple wholesale lenders.

She starts with the math that only works when nothing goes wrong, and makes sure yours still works when something does.

Review an investment property DSCR loans in Michigan

FAQ: Short-term rental regulations

Here are answers to common questions about short-term rental regulations.

What counts as a short-term rental?

In most jurisdictions, a stay shorter than 30 consecutive days, whatever the platform. Stays of 30 days or longer are generally ordinary tenancies under landlord-tenant law. That line usually decides which license you need, which taxes apply, and whether the unit is permitted in the district. See our guide to investing in short-term rentals.

Do I need a license to run a short-term rental?

In most cities that allow the use, yes. Requirements commonly include a permit or registration number, a business license, proof of insurance, a named local responsible party and a safety inspection covering alarms and egress. Many ordinances also require the permit number in the listing. See rental property management.

What taxes do short-term rental owners owe?

Usually three layers: income tax on net profit, a state lodging or use tax where lodging is taxable, and a county or local accommodations tax. Platforms remit some of these in some jurisdictions, rarely all of them everywhere, and the owner stays liable for the gap. Take the return to a CPA.

Can an HOA or condo association ban short-term rentals?

Yes. Even where the municipality permits the use, a condominium association or HOA can restrict or prohibit it through its declaration and bylaws, enforceable privately against owners. Common limits include minimum lease terms, caps on rented units and outright bans. See navigating HOA regulations.

The bottom line on short-term rental regulations

Short-term rental regulation is local, and it is four approvals rather than one: zoning says whether the use belongs on the parcel, a license whether you may operate it, an inspection whether guests may sleep there, and a tax registration who remits. The regimes sort into permit-and-registration, primary-residence requirements, density or distance caps, and outright prohibition, and one town can run several at once. Michigan adds a 6% use tax on stays of 1 month or less plus a county accommodations excise tax where levied (up to 5%, or as much as 8% with county voter approval) and has not enacted statewide preemption. Verify the ordinance for your address in writing before your contingency expires.

If you’re ready to finance a property you intend to rent, talk to Align Lending. We’ll shop your scenario across our lender network and show you investor pricing side by side, so financing is settled while you work the ordinance. Call 248-506-5727 or start online. Take zoning, licensing and deed-restriction questions to a Michigan attorney, and tax questions to a CPA.

Footnotes:

1. Short-term rental regulation is local and changes frequently. The four regimes described above are a general description of approaches observed across many jurisdictions, not a statement of the rule in any particular city, village, township or county, and no statewide or nationwide short-term rental rule is stated or implied here. The Holland, South Haven and Park Township descriptions reflect each municipality’s own published materials as of publication and are illustrative examples, not current advice about those communities or any other. Ordinance text, permit caps, occupancy limits, enforcement practice and nonconforming-use protections vary parcel by parcel and are amended on local timelines. Verify the current ordinance, zoning district text and any pending amendments with the municipality where the property is located, and confirm private restrictions, license transferability and legal nonconforming status with a Michigan real estate attorney before purchase. Return to text.

2. Align Lending is a mortgage broker and is not an insurance agency, agent or producer, and nothing here is insurance advice or a recommendation of any policy, carrier or endorsement. Coverage terms, exclusions, endorsements and availability vary by carrier, policy form, state and property, and any liability minimum described is a licensing requirement of the municipality named rather than a general standard. Confirm what your policy covers, what a short-term rental endorsement or business policy would add, and what any booking platform’s protection program excludes with a licensed insurance agent before accepting bookings. Return to text.

3. This article is for informational purposes only and is not tax advice. Lodging, use and accommodations tax rates, registration duties, exemptions and platform collection agreements change and vary by state, county, municipality and address, and federal rules on minimal rental use, personal use, passive activity treatment and depreciation depend on facts specific to your property and your use of it. Consult a qualified tax professional about your situation before relying on any threshold described here, and confirm current state and local registration requirements with the relevant revenue authority. Return to text.

4. The Michigan legislative history above describes bills as introduced, reported or passed on the dates stated and is not a prediction of any outcome. A bill that has passed one chamber is not law, a bill in committee may never receive a vote, and the status of pending legislation can change at any time. Nothing here states or implies that Michigan has preempted, will preempt, or will decline to preempt local short-term rental regulation. Confirm the current status of any bill with the Michigan Legislature and the current ordinance with the municipality before relying on either. Return to text.

Sources: The rule that a taxpayer who uses a dwelling unit as a residence and rents it fewer than 15 days during the tax year does not report the rental income and does not deduct rental expenses, and the definition of a unit used as a residence as personal use exceeding the greater of 14 days or 10% of the total days rented to others at a fair rental price, Internal Revenue Service, Publication 527, Residential Rental Property (Including Rental of Vacation Homes), for use in preparing 2025 returns, and Topic No. 415, Renting Residential and Vacation Property. The exception providing that an activity is not a rental activity when the average period of customer use of the property is 7 days or less, and the further exception at 30 days or less where significant personal services are provided, Internal Revenue Service, Publication 925, Passive Activity and At-Risk Rules, for use in preparing 2025 returns, and Treasury Regulation section 1.469-1T(e)(3). The statements that standard homeowners insurance policies do not provide any coverage for business activities conducted in the home, that renting to various guests on a regular basis constitutes a business, that occasional rental may be handled by notification or an endorsement, and that regular short-term rental of a primary residence calls for a business policy such as a hotel or bed-and-breakfast policy, Insurance Information Institute, Coverage for renting out your home. Use tax levied at a total combined rate of 6% of the price of property or services specified in section 3a, MCL 205.93(1); taxation of rooms or lodging furnished by hotelkeepers, motel operators and other persons furnishing accommodations available to the public on the basis of a commercial and business enterprise, with the definition of “hotel” or “motel” expressly including tourist homes, tourist houses or courts, lodging houses, rooming houses, apartment hotels, and resort lodges and cabins, and the exclusion of rooms and lodging rented for a continuous period of more than 1 month. Use Tax Act, 1937 PA 94, MCL 205.93(1) and MCL 205.93a(1)(b), and Michigan Department of Treasury use tax guidance (“No tax is due if the room is rented for a continuous period of more than one month to the same tenant”). The definition of “transient guest” as a natural person staying less than 30 consecutive days, MCL 141.861(k). County excise tax on the business of providing rooms to transient guests, available to a county with a population of less than 600,000 that contains a city of not less than 40,000, at a rate of not more than 8% of the total charge and not more than 5% unless a majority of the county’s qualified electors voting on the question approve the levy; and the authority of a local unit of government in a county of more than 600,000 and less than 775,000 to levy up to 2% with voter approval, Public Act 263 of 1974, MCL 141.861 to 141.867, specifically MCL 141.862(1), (6) and (8) and MCL 141.862a, as amended by 2024 PA 35, effective April 2, 2024. Authority of a local unit of government to provide by zoning ordinance for the regulation of land development and the establishment of districts within its zoning jurisdiction, Michigan Zoning Enabling Act, 2006 PA 110, MCL 125.3101 to 125.3702 and MCL 125.3201(1). House Bill 4722 of 2021, which would have added section 206b making short-term rental a residential use permitted in all residential zones, as passed by the House October 27, 2021 by a vote of 55 to 48 and reported from the Senate Regulatory Reform Committee October 11, 2022 without enactment; and House Bills 6026 and 6027 of 2026, both introduced June 2, 2026 and referred to the House Committee on Government Operations, HB 6026 creating a “short-term rental act” establishing a state registry and database and a statewide short-term rental excise tax, and HB 6027 amending section 207 of 2006 PA 110, MCL 125.3207, to clarify a prohibition on a total local ban, the two tie-barred to each other, Michigan Legislature. Investor-owned short-term rentals limited to 25 properties with a 500-foot separation distance in the LDR, CNR, MDR and TNR residential zone districts, the definition of a short-term rental as a dwelling unit offered for rent for less than 30 consecutive days per occupant, and the statement that there are currently no openings, City of Holland Rental Certification and Licensing Guide. Class I licenses permitting unlimited rental but not more than 2 rental stays per 7-day period, Class II licenses permitting 6 rental terms or 28 days of rental per calendar year, and the $1,000,000 liability insurance requirement for Class I applicants, City of South Haven Short-Term Rental Registration. The unanimous November 10, 2022 board vote prohibiting short-term rentals in residential zoning districts, the requirement that all such uses end by October 1, 2023, and the approximately 248 units then operating, Park Township, Michigan, board press release; Ottawa County Circuit Court rulings of November 21, 2024 and November 4, 2025 upholding the township’s position, per Park Township public statements. Second home requirements including borrower occupancy for some portion of the year, restriction to one-unit dwellings, exclusive borrower control, exclusion of rental property, and the prohibition on agreements giving a management firm control over occupancy, together with the definition of an investment property as owned but not occupied by the borrower, Fannie Mae Selling Guide B2-1.1-01, Occupancy Types. Fair Housing Act, 42 U.S.C. 3604, and Michigan’s Elliott-Larsen Civil Rights Act, 1976 PA 453; consumer report duties including the adverse action notice, Fair Credit Reporting Act, 15 U.S.C. 1681 et seq. Further reading: the Michigan Department of Treasury’s use tax page, the Michigan Legislature’s record for House Bill 6026 of 2026, and the Consumer Financial Protection Bureau. For current mortgage rate benchmarks, see the Freddie Mac Primary Mortgage Market Survey.

This article is for informational purposes only and is not intended to provide legal, financial, tax or investment advice. Short-term rental ordinances, license caps, zoning classifications, occupancy limits, deed restrictions and association rules, insurance terms, lodging and accommodations tax rates, federal tax rules and loan program requirements change and vary by property, program and locality; confirm current figures with your loan officer, confirm tax treatment with a qualified tax professional, confirm coverage with a licensed insurance agent, and confirm ordinance, licensing, zoning and title questions with a Michigan attorney. Align Lending is an independent Michigan mortgage broker, NMLS #2041154, financing one- to four-unit residential property, and is not a property manager, an insurance agency, a law firm or an investment adviser.