Tiny homes and alternative properties have gone mainstream thanks to television shows like Tiny House, Big Living and Tiny House Nation. A TV program may pique someone’s interest, but deeper reasons inform this drift toward smaller spaces.
Certified Public Accountants (CPAs) and other financial advisors ought to be aware of the numerous tax implications of tiny homes and other alternative properties, from property, sales, and income taxes to transfer taxes and zoning regulations. Plus, understanding why clients are drawn to a tiny home or other alternative property can strengthen the insight to clients curious about or looking to invest in this growing trend.
Essential CPA Knowledge for Client Guidance
What is a Tiny Home of Alternative Property?
Definitions of a tiny house vary, with sizes ranging from 65 square feet up to 700. Tiny House Nation limits renovations to less than 500 square feet (same as Realtor.com), while Business Insider defines a tiny house as between 500 and 700 square feet. The most widely adopted definition by state governments comes from the International Residential Code (IRC), which defines a tiny home as 400 square feet or less.
Size is not the only criterion for tiny homes, however. Tiny houses are also built to address function as the primary goal, with design focusing on effective use of space centered around the inhabitants’ needs.
Types of tiny homes and alternative properties include:
- Manufactured, Modular, Panel, Log, and Jewel Box Homes
- Yurts, Earthships, and Shipping Container Homes
- School Bus Conversions, RVs, and Cob Houses
The creativity required in building alternative properties from these materials allows for the same design flexibility as traditional homes. Think of a shipping container reborn as a log cabin or a school bus turned bungalow. Typically, these homes are fully customized to the resident and offer ample space for creativity and personality to shine—no doubt part of the attraction.
There’s hesitation, even resistance to this movement from some who believe a home like this runs counter to the American Dream.
Why do people opt for tiny homes or alternative properties rather than traditional housing?
Why Might Someone Consider a Tiny Home or Alternative Property?
People find tiny homes and alternative properties attractive for a variety of reasons, but most commonly some mix of the following:
An Alternate Way of Living
Specifically, seeking meaning from a life marked by fewer societal expectations and a reduced focus on consumerism. Less space to fill means what a person has must be deliberate, purposeful. For many, tiny homes represent a simpler way of living.
Decreased Ecological Footprint
A physically smaller space makes fewer demands on resources and produces less waste than traditional homes. The average amount of waste created to build a traditional house has been estimated to weigh about as much as two tiny houses. Not to mention the environmental costs of deconstructing and constructing traditional homes.
Affordability
Traditional homes can be expensive, pricing some clients out of contention. Others simply do not want to be saddled with mortgages or leases. For these groups, a tiny home can provide a path to self-sufficiency and home ownership.
Freedom from Convention
Living more economically allows residents of tiny homes more financial flexibility to pursue their passions, be they hobbies or business ventures. Members of the tiny home community typically place more value on relationships and creating meaning from their work, which might explain why they find the movement so appealing.
Understanding tiny homes and why your client might be interested in one can help improve the insight you offer during consultations.
Tax Implications of a Tiny Home
Tiny homes and alternative properties raise a host of tax issues that should be kept in mind when considering ownership. From rental income taxes to home office deductions to navigating state and local regulations, there is much a CPA ought to be aware of to best serve their clients.
WebCE’s latest CPA CPE online course, “A CPAs Guide to Tiny Homes and Other Alternative Properties,” now available in our online CPA CPE catalog, offers a detailed explanation of each of these tax implications and regulations, as well as,
- Deep dives on all the types of tiny homes listed above
- Barriers of tiny home ownership
- Key aspects of tiny home communities
- And much more
Understanding tiny homes and the lifestyle its community embraces is important for CPAs and other financial advisors to understand because they can better assist clients interested in its ideals, discuss the advantages of nontraditional housing, and advise them on opportunities for investment.