Owning a short-term rental in Colorado — whether it's a mountain cabin near Breckenridge or a condo in Denver — can be a great income stream. But the tax implications can get complicated fast. Here's what you need to know about deductions, reporting, and local tax requirements.
The 14-Day Rule
If you rent your property for 14 days or fewer per year, you don't have to report the rental income at all. This is sometimes called the "Masters Rule" or "Augusta Rule." It's completely legal and can be a nice tax-free income boost for occasional rentals.
However, if you rent for more than 14 days, all rental income becomes reportable, and you'll need to track expenses carefully.
Deductible Expenses
Short-term rental owners can deduct a wide range of expenses. If the property is used exclusively as a rental, you can deduct 100% of these costs. If you also use it personally, you'll need to allocate expenses based on the number of rental days vs. personal use days.
- Mortgage interest (allocated to rental use)
- Property taxes
- Insurance premiums
- Utilities (electric, gas, water, internet, cable)
- Cleaning and maintenance costs
- Property management fees
- Airbnb/VRBO platform fees
- Furnishings and supplies (towels, linens, kitchen items)
- Repairs and maintenance
- Advertising and marketing
- Professional photography
- Depreciation of the property and furnishings
💡 Pro Tip: Depreciation is one of the most valuable deductions for rental property owners. You can depreciate the building (not the land) over 27.5 years, which creates a "paper loss" that reduces your taxable income without costing you any cash.
Colorado Sales Tax & Lodging Tax
This is where Colorado gets tricky. Short-term rentals (less than 30 days) are subject to:
- Colorado state sales tax (2.9%)
- County lodging/accommodation tax (varies by county)
- City/town lodging tax (varies — some mountain towns charge 4-5%+)
- Special district taxes (tourism, marketing districts)
Platforms like Airbnb collect and remit some of these taxes automatically, but not all of them. You may still be responsible for collecting and remitting certain local taxes yourself. Check with your local jurisdiction to understand your specific obligations.
Schedule C vs. Schedule E
How you report your rental income depends on the level of services you provide:
Schedule E (Rental Income)
For properties where you provide the space but minimal services:
- • Self-serve check-in
- • No daily cleaning
- • No meals or concierge
- • Not subject to self-employment tax
Schedule C (Business Income)
For properties where you provide substantial services:
- • Daily cleaning during stays
- • Meals or food service
- • Concierge or tour services
- • Subject to self-employment tax
Cost Segregation: A Powerful Strategy
If you own a short-term rental property, a cost segregation study can accelerate your depreciation deductions significantly. Instead of depreciating the entire building over 27.5 years, a cost segregation study identifies components (appliances, flooring, landscaping, etc.) that can be depreciated over 5, 7, or 15 years.
For a property worth $500,000, a cost segregation study might identify $100,000+ in assets that qualify for accelerated depreciation, creating substantial tax savings in the early years of ownership.
Record Keeping Tips
- Keep a log of personal use days vs. rental days
- Save all receipts for repairs, supplies, and improvements
- Track mileage for trips to the property for maintenance or management
- Keep records of platform payouts and any direct bookings
- Document the condition of the property with photos (useful for depreciation and insurance)
- Maintain separate bank accounts for rental income and expenses
Don't Go It Alone
Short-term rental taxes in Colorado involve federal income tax, state sales tax, local lodging taxes, and complex allocation rules. The rules vary significantly depending on your property's location and how you use it. Working with a tax professional who specializes in rental properties can save you money and keep you compliant.