Colorado STR intelligence, from the field.

Short-term rental tax strategy is one of the most underutilized levers available to Colorado property investors. The right strategies can reduce your tax liability by tens of thousands of dollars annually.

Depreciation: The Foundation

All rental properties benefit from depreciation — the IRS allows you to deduct the cost of the building (not the land) over 27.5 years for residential rental property. On a $1M property with $200,000 in land value, that's $800,000 / 27.5 = $29,090 in annual depreciation deductions.

Cost Segregation: Accelerating Depreciation

Cost segregation reclassifies components of your property from 27.5-year depreciation to 5, 7, or 15-year depreciation. Combined with bonus depreciation (currently 60% in 2024, phasing down to 40% in 2025), cost segregation can generate massive first-year deductions. On a $1M property, a cost segregation study might identify $150,000-$250,000 in accelerated depreciation.

The STR Loophole: Material Participation

Unlike long-term rentals (which are passive activities for most investors), short-term rentals with average guest stays of 7 days or less can qualify as non-passive activities if you materially participate. This is significant because non-passive losses can offset ordinary income (wages, business income) without limitation.

The Augusta Rule (Section 280A)

The Augusta Rule allows homeowners to rent their primary residence for up to 14 days per year completely tax-free. The rental income is not reported on your tax return. For owners of high-value properties in desirable locations, this can generate $5,000-$20,000 in tax-free income annually.

Qualified Business Income (QBI) Deduction

If your STR qualifies as a trade or business, you may be eligible for the 20% QBI deduction under Section 199A. This can reduce your effective tax rate on STR income significantly.

Note: This article is for informational purposes only and does not constitute tax advice. Consult a qualified tax professional for guidance specific to your situation.

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