Tax Implications of a VRBO

family-591581_1280As Colorado CPAs, we often see our clients converting residential rental properties into short term rentals (also known as “vacation rentals”) for periods of less than 30 days. Commonly, these properties are located in resort areas, of which we have many in Colorado. Increasingly, we see two other property categories emerging as candidates for this arrangement: locations in metropolitan areas, such as Denver, where multiple attractions are accessible via a short drive and properties located within proximity to medical facilities, such as Children’s Hospital Colorado. One website offering such rentals is www.vrbo.com which could be an excellent website to list your vacation rental property.

If you are considering listing your property for one of the property locations mentioned, there are certain financial details you should be aware of such as lodging tax, income tax implications and how to register and license your rental home for short term leases:

Lodging Tax

Lodging tax is the same tax a hotel pays and it is charged for each night’s stay; short-term rental owners must pay the same tax. Those who list the property must collect this tax from the renter just as a hotel would and remit it to the appropriate agencies. In addition to filing with the state, there are additional special districts, metropolitan districts, local marketing districts and counties who also have additional taxes charged on lodging. In Colorado, both the state and several of our counties have specific requirements.

Income Tax

The revenue generated through rental property is income, and must be filed with the appropriate agencies, like the IRS and the State of Colorado. Your accountant should be aware of which agencies are involved, and the filing deadlines and schedules for each.

Registration and Licensing

It is necessary to file registration and licensing paperwork, such as a Colorado sales tax number, and receive approval from the appropriate agencies before a home is offered for rental. If you list your property with a property manager, that company should be familiar with the filing requirements and keep you in compliance.  If you don’t work with a property management group, you may want to look into software to assist you; MyLodgeTax by Avalara is one such software.

Contact us here at ClearPath Accountants if you’re considering such an arrangement with your rental property in Colorado or other US cities before you advertise, and we can help you know your responsibilities

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