🍪 We use cookies to ensure you get the best experience on our website, including for analytics and personalized ads. By continuing to use our site, you agree to our Privacy Policy.
The Rocky Mountain High extends to the potential income from your Colorado VRBO property, but remember that rental income is subject to both federal and Colorado state taxes. Understanding these obligations is crucial for compliant and optimized tax filing for the 2025 tax year.
Colorado State Tax Rules for Rental Income
As a resident of Colorado, you are required to file a state income tax return, even if your only income is from your VRBO rental. Colorado operates under a flat income tax rate, currently at 4.40% for the 2025 tax year (subject to change by legislation). Rental income reported on your federal Schedule E is also subject to this state income tax. The primary form for self-employed individuals and those with rental income to report to the state is Form DR 0104, Colorado Individual Income Tax Return. This form, along with any applicable schedules, must be filed by April 15th, 2026. Colorado also requires you to report your federal Adjusted Gross Income (AGI) on your state return. It's important to note that Colorado does not have separate tax forms specifically for rental income; it's integrated into the standard individual income tax return. Furthermore, Colorado allows for a residential rental deduction, which can reduce your taxable income. This deduction is based on a percentage of the rent received and is subject to certain limitations. Keep detailed records of all rental income and expenses to accurately calculate your state tax liability. You can find more information and access tax forms on the Colorado Department of Revenue website: Colorado Department of Revenue.
The Critical Tax Question: Are You a Business or a Rental?
Determining whether your VRBO activity constitutes a passive rental or an active business is the most important tax decision you’ll make. This distinction directly impacts whether you’ll owe self-employment tax.
Schedule E (Passive Rental Income): The majority of casual VRBO hosts report income and expenses on Schedule E (Supplemental Income and Loss). If you primarily provide lodging and basic cleaning between guests – think changing linens and wiping down surfaces – you likely qualify for Schedule E reporting. This means you avoid the 15.3% self-employment tax (Social Security and Medicare).
Schedule C (Active Business Income): If you offer “substantial services” akin to a hotel, you’ll report on Schedule C (Profit or Loss from Business). Substantial services include daily cleaning, providing meals, offering concierge services, or extensive amenities. Reporting on Schedule C triggers the 15.3% self-employment tax on your net profit.
Top Tax Write-offs for Colorado Hosts
Platform Fees: All fees charged by VRBO, Airbnb, or other platforms are fully deductible as business expenses.
Mortgage Interest & Property Taxes: You can deduct the portion of your mortgage interest and property taxes that corresponds to the percentage of your home used for rental purposes and the number of days it was rented.
Repairs, Maintenance & Cleaning: Expenses for repairing damage, routine maintenance (like HVAC servicing), and professional cleaning services are deductible. Supplies used for cleaning are also deductible.
Depreciation: This allows you to deduct a portion of the cost of your rental property over its useful life. It’s a powerful deduction, but can be complex. Consulting a tax professional is highly recommended for depreciation calculations.
⚡️ Tax Estimator
Estimate your taxes using current IRS rules.
Simplified Method: $5 per sq ft (Max 300 sq ft)
Your Estimated Results:
Net Profit (Taxable Income):$0.00
Federal Self-Employment Tax (15.3%)
Includes 12.4% for Social Security and 2.9% for Medicare.$0.00