VRBO Host Taxes in Denver, Colorado - 2026

Updated for 2026 (Filing 2025 Taxes)

Navigating Tax Essentials for Your VRBO in Denver, Colorado

Denver's magnetic draw - from the majestic Rockies and the iconic Red Rocks Amphitheatre to a thriving tech scene and burgeoning culinary landscape - makes it an undeniable hotspot for short-term rentals. As a VRBO host in this vibrant city, you're tapping into a significant revenue stream. However, successfully navigating this market means mastering the tax landscape. Your rental income is taxable at both the federal and Colorado state levels, and understanding the nuances, from specific Denver ordinances to powerful deductions, is paramount for maximizing your profitability and ensuring full compliance. Diligent record-keeping isn't just a good idea; it's your financial bedrock.

Colorado State Tax Rules for Rental Income in the Mile High City

As a Colorado resident, even if your VRBO property is located elsewhere in the state or nation, you are obligated to file a Colorado state income tax return. Colorado operates with a flat income tax rate, currently 4.40% for the 2025 tax year (always subject to legislative change). This means all taxable income, including your VRBO rental income, is taxed at this consistent rate. Income reported on your federal Schedule E, or as a business on Schedule C, will flow directly onto Colorado’s Form DR 0400, Individual Income Tax Return.

A critical point for hosts: Colorado mandates estimated tax payments if you anticipate owing $1,000 or more in state income tax. Failing to do so can result in penalties, so proactive planning is key. Denver’s specific short-term rental ordinance requires hosts to obtain and maintain a city license, and any fees associated with this licensing, along with other local compliance expenses like parking permits or specific safety upgrades, are generally deductible. Given the high demand and often rapid guest turnover in Denver, increased property maintenance and cleaning needs are common; meticulous tracking of these recurring expenses is absolutely vital. Colorado offers both a standard deduction and itemized deductions; it's always wise to calculate which method yields the greater tax savings for your situation. For comprehensive information and to access essential tax forms, visit the Colorado Department of Revenue website: https://www.colorado.gov/revenue. Remember, thorough records are your best defense and your pathway to accurate filings.

The Defining Question: Is Your VRBO an Active Business or a Passive Rental?

This distinction is perhaps the most crucial tax classification for a VRBO host, as it directly impacts whether you're liable for self-employment tax and influences eligibility for certain deductions like the Qualified Business Income (QBI) deduction. The IRS classifies rental activity based on the level of services you provide to your guests.

• Schedule E (Passive Rental Income): Most casual hosts find themselves reporting on Schedule E, which typically denotes passive rental income and exempts you from self-employment tax. This classification applies if you primarily provide basic lodging and standard cleaning services between guests. Simply offering a well-maintained, clean, and functional space, without extensive additional amenities or services, usually falls into this category.
• Schedule C (Active Business Income): However, if you provide "substantial services," your VRBO activity is likely considered an active trade or business, reported on Schedule C. Examples of substantial services include daily housekeeping, providing meals or extensive snacks, offering toiletries beyond basic soap and shampoo, concierge services, or organized tours. If your activities cross this threshold, the IRS views your VRBO as an active business, necessitating the payment of self-employment tax, which covers Social Security and Medicare taxes and currently totals 15.3% on your net earnings.

Unlocking Savings: The Qualified Business Income (QBI) Deduction

Whether your VRBO operation lands on Schedule E or Schedule C, you might be eligible for the powerful Qualified Business Income (QBI) deduction, also known as the Section 199A deduction. This federal deduction allows eligible business owners to deduct up to 20% of their qualified business income from their taxable income. For VRBO hosts, this can translate into significant tax savings. If your rental activity rises to the level of a "trade or business" - which can happen even for some Schedule E filers, often requiring at least 250 hours of service per year to meet safe harbor rules - you may qualify. The rules can be complex, involving income limitations and the need for careful record-keeping to substantiate your hours or business activities. Consulting with a tax professional is highly recommended to determine your eligibility and maximize this valuable deduction.

Top Tax Write-offs for Denver, Colorado VRBO Hosts

Diligent tracking of your expenses is key to reducing your taxable income. Here are some of the most common and impactful deductions for Denver VRBO hosts:

• Platform Fees: The commissions, booking fees, and payment processing fees charged by platforms like VRBO, Airbnb, and others are fully deductible business expenses.
• Mortgage Interest & Property Taxes: Deduct the portion of your mortgage interest and the property taxes that are attributable to the rental space and the period it was rented. Given Denver's real estate market, these can be substantial deductions. If the property is used for both personal and rental purposes, accurate allocation of these expenses is mandatory.
• Repairs, Maintenance & Cleaning: Costs for fixing broken items (repairs), professional cleaning services, and cleaning supplies are all deductible. For Denver hosts, this extends to routine maintenance like snow removal in the harsh winters, lawn care, and general upkeep that keeps your property appealing to guests.
• Utilities: If you cover utilities like electricity, gas, water, internet, and cable for your rental guests, these expenses are deductible. Ensure you accurately allocate these if you also use the property personally.
• Insurance: Premiums for homeowner's insurance, landlord insurance, and any specific short-term rental liability policies are deductible.
• Supplies: Anything provided for guest use, such as toiletries, linens, towels, and welcome basket items, is deductible.
• Professional Fees: Payments to accountants, tax preparers, legal counsel, or property managers directly related to your VRBO operation are deductible.
• Depreciation: This is a powerful, yet often misunderstood, deduction. Depreciation accounts for the wear and tear on your rental property and its furnishings over their useful life. It allows you to deduct a portion of the property's cost each year, significantly reducing your taxable income. While complex to calculate correctly, its impact on your bottom line can be immense.
• Home Office Deduction: If you use a specific area of your primary residence exclusively and regularly for managing your VRBO business - answering inquiries, managing bookings, handling finances - you may qualify for the home office deduction.
• Vehicle Expenses: Costs associated with using your personal vehicle for business purposes - driving to the property for cleaning, repairs, or guest check-ins - are deductible. You can choose between the standard mileage rate or deducting actual expenses (including gas, oil, repairs, and depreciation).

Optimize Your Deductions: Leverage Our Advanced Calculator

Navigating these deductions can feel overwhelming, but smart tax planning can lead to substantial savings. That's why we’ve developed our Advanced Calculator (available below). This powerful tool empowers you to accurately compare the benefits of the Standard Mileage Rate versus deducting Actual Expenses for your vehicle, including the often-overlooked depreciation component. Furthermore, our calculator simplifies the complexities of the Home Office deduction, helping you assess your eligibility and calculate potential savings. Don't leave money on the table - use our calculator to make informed decisions and optimize your VRBO tax strategy today!