Tennessee is one of the more workable states for short-term rental investing, largely because a 2018 state law limits how far local governments can go in banning units that were already operating, and because the Smoky Mountain corridor operates under county and small-city rules that have stayed comparatively stable.
Where the state stands
Short-term rental rules change frequently and the controlling rule is usually local, not statewide. Treat this as orientation, then verify the current ordinance with the city or county directly, and read any homeowner association or condominium declaration separately. This is not legal advice.
The Tennessee Short Term Rental Unit Act, enacted in 2018, generally prevents local governments from prohibiting short-term rental units that were lawfully operating before the local ordinance took effect. This grandfathering is the state's most important protection for existing operators.
Local governments retain broad authority over new units, including permitting, zoning, occupancy limits, noise and inspection requirements.
Nashville distinguishes owner-occupied from non-owner-occupied permits and restricts non-owner-occupied permits by zoning district, which caps supply in the most desirable areas.
The details that matter
- Sevier County and the Smokies cities, Gatlinburg, Pigeon Forge and Sevierville, have long-established cabin rental economies and correspondingly established regulatory frameworks.
- Tennessee levies no state income tax on wages, which removes a layer of state-level complexity for high-earning buyers, though it does not change federal treatment.
- State and local occupancy and sales taxes apply. Platforms collect some of these automatically and not others, so confirm what remains your responsibility.
City and county positions
Regulation in Tennessee is decided locally far more than at the state level. The table below is orientation, not a substitute for calling the jurisdiction.
| Jurisdiction | Position | Investor risk |
|---|---|---|
| Nashville | Permit required; non-owner-occupied restricted by zoning district | High |
| Sevierville / Pigeon Forge / Gatlinburg | Established cabin rental frameworks, permits and inspections | Moderate |
| Chattanooga | Permit and zoning requirements, restricted in some residential zones | Moderate to high |
| Memphis | Permit program with density and separation limits | Moderate |
How to verify before you write an offer
The verification sequence is the same in every state, and skipping any step is how buyers end up owning a property that cannot legally operate.
- Confirm the zoning designation for the specific parcel, not the neighborhood.
- Confirm whether short-term rental is an allowed use in that zone, and whether a permit is required.
- Confirm whether permits are capped, waitlisted, or transferable on sale.
- Read the homeowner association or condominium declaration in full. Private restrictions bind independently of any municipal rule.
- Confirm the lodging and occupancy tax registration obligations, and which taxes the booking platform collects on your behalf.
- Ask the jurisdiction directly, in writing, and keep the response.
We do this for every property we bring to a client before an offer goes out, because a property that cannot legally operate is worth its long-term rental value regardless of what the short-term proforma says.
Keep reading
Frequently asked questions
Are short-term rentals legal in Tennessee?
Yes, subject to local rules. A 2018 state act generally prevents local governments from prohibiting units that were lawfully operating before a local ordinance took effect, but cities retain broad authority over new permits, zoning and operating standards.
How does Nashville regulate short-term rentals?
Nashville separates owner-occupied from non-owner-occupied permits and restricts non-owner-occupied permits by zoning district. That cap on supply is a large part of why permitted Nashville properties hold their value.
Do I owe occupancy tax in Tennessee?
State and local occupancy and sales taxes generally apply. Booking platforms collect some of these automatically and not others depending on the jurisdiction, so confirm with the local authority what remains your responsibility.