Colorado real estate accounting in 2026 rests on four state rules that sit on top of your federal return: a flat 4.4% income tax, general conformity to federal depreciation (with no state addback listed for 100% bonus depreciation), split residential assessment rates for property tax, and lodger's tax on stays of fewer than 30 days in Denver. Each one changes either the return or the books for a Colorado property.
This guide explains how those rules work as of October 2026, where Colorado follows federal law and where it adds income back, and what your records need to capture so the state numbers reconcile. It is written for individual landlords, LLCs and partnerships that own Colorado rental, commercial or short-term rental property, and for the accountants who keep their books.
Colorado taxes individuals on federal taxable income, adjusted by a short list of state additions and subtractions. The Colorado Department of Revenue's individual income tax guide says the state "generally conforms to federal law and permits in the calculation of Colorado tax the same deductions" allowed federally, with specific exceptions that must be added back. For a landlord, that means the Schedule E rental figures you report to the IRS flow into the Colorado return largely unchanged.
Out-of-state owners are covered too. According to the DOR's guidance on part-year residents and nonresidents, "Income from real and tangible personal property located in Colorado is Colorado-source income." A Texas resident who owns a Denver duplex therefore reports the rent, and any gain when the duplex sells, on a Colorado nonresident return. Our separate guide to Colorado rental property filing requirements walks through who must file and which forms apply.
If you are comparing providers rather than learning the rules, our overview of real estate accounting services in the USA covers that question.
Colorado uses one flat rate for all taxable income. The DOR guide lists the rate by year: 4.4% for 2022 and 2023, 4.25% for 2024 and 4.4% for 2025. The 2024 dip came from a temporary rate reduction under section 39-22-627, C.R.S., which can lower the rate for a single year when state revenue exceeds its constitutional limit.
For 2026, the DOR's 2026 Colorado Withholding Worksheet for Employers (DR 1098) applies a rate of 4.40% to wages. As of October 2026, plan on 4.4% for 2026 rental income, and check the final DR 0104 instructions in early 2027 in case a temporary reduction is triggered for the year.
A quick sense of scale: $80,000 of Colorado taxable rental income produces $3,520 of state tax at 4.4%, compared with $3,400 at the 2024 rate of 4.25%.
Three Colorado additions matter most for property investors in 2026.
Qualified business income (QBI) deduction. Many rental activities that rise to the level of a trade or business qualify for the federal section 199A deduction. Colorado requires single filers with AGI above $500,000 and joint filers with AGI above $1,000,000 to add the full federal QBI deduction back, and partners or shareholders of an entity that makes the Colorado SALT Parity election must add it back regardless of income. This addback was scheduled to expire for 2026, but HB25B-1001, signed on August 28, 2025, continues it indefinitely.
Federal itemized or standard deduction. For 2023 and later, single or joint filers with AGI above $300,000 may have to add back the part of their federal itemized or standard deduction that exceeds a set limit. The DOR guide shows that limit falling to $1,000 for single filers and $2,000 for joint filers for 2026 and later, from $12,000 and $16,000 for 2023 through 2025. Rental expenses on Schedule E are outside this addback, but mortgage interest and property tax on your own home that you itemize are inside it.
Overtime deduction. For 2026 and later, Colorado requires an addback of the full federal overtime deduction claimed on Schedule 1-A. This rarely touches rental income directly, but it affects investors who also earn W-2 overtime.
Depreciation is the area where Colorado real estate accounting is usually simpler than in many states. Federally, the One Big Beautiful Bill Act restored a permanent 100% first-year deduction. IRS Notice 2026-11 describes it as "a permanent 100 percent additional first year depreciation deduction for qualified property acquired and placed in service ... after January 19, 2025." Our guide to bonus depreciation for real estate covers which components qualify.
Colorado's list of required additions in the DOR guide contains no depreciation adjustment. Because the state starts from federal taxable income and does not list a bonus depreciation addback, the federal deduction generally carries through to the Colorado return. The DOR has not published a statement on bonus depreciation in those words, so confirm the treatment against the 2026 DR 0104 instructions before filing. That approach differs sharply from states that decouple. Our guide to Georgia real estate investor taxes shows what a state add-back looks like in practice.
Federal limits still apply, and therefore flow into Colorado. The building shell itself is not bonus-eligible: IRS Publication 527 states that residential rental property is depreciated "over 27.5 years" under GDS. Bonus depreciation applies to the shorter-life components that a cost segregation study separates out, such as appliances, carpet and land improvements.
Assume a 2026 purchase of a Colorado rental building where a cost segregation study identifies $150,000 of 5-year property. The table compares Colorado with a state that rejects bonus depreciation and uses 5-year MACRS half-year rates instead.
| Year | Federal and Colorado deduction (100% bonus) | Deduction in a decoupled state (5-year MACRS) |
|---|---|---|
| 2026 | $150,000 | $30,000 |
| 2027 | $0 | $48,000 |
| 2028 | $0 | $28,800 |
| 2029 | $0 | $17,280 |
| 2030 | $0 | $17,280 |
| 2031 | $0 | $8,640 |
| Total | $150,000 | $150,000 |
At 4.4%, the full $150,000 deduction is worth up to $6,600 of Colorado tax in 2026 if the owner can use the loss and Colorado follows the federal bonus deduction as expected. The qualifier matters. Rental losses are passive for most investors, and Publication 527 limits the special allowance for active participants to "$25,000 for single individuals and married individuals filing a joint return," phasing it out between $100,000 and $150,000 of modified AGI. A suspended federal loss is suspended for Colorado as well, so the passive activity records feed both returns.
Because federal and Colorado depreciation usually match, one fixed asset register serves both returns. That makes the components list from the study the key record, since it drives depreciation recapture when you sell. Our real estate investor bookkeeping checklist shows how to set up that register.
Colorado property tax is calculated as actual value, less any exempted amount, multiplied by an assessment rate and then by the mill levy of each taxing entity. The legislature rewrote the assessment rates in 2024, and the special session bill HB24B-1001, signed on September 4, 2024, set the rates now in use.
For 2025, residential property carries two rates: one for local governments and one for school districts. Under HB24B-1001, those were 6.25% and 7.05% where statewide value growth was 5% or less, or 6.15% and 6.95% where growth exceeded 5%. The Denver Assessor's Office published rates for 2025 show 6.25% for local government and 7.05% for schools, the lower-growth set.
For 2026 and later, the bill sets the local government rate at 6.8% (or 6.7% if statewide growth exceeded 5%) applied to actual value minus the lesser of 10% of actual value or $70,000, adjusted for inflation in later reassessment cycles. The school district rate set from 2025 continues. Colorado reappraises property every odd-numbered year, so 2026 values generally carry forward from the 2025 notice.
Most nonresidential and personal property was assessed at 27% for 2025. For 2026, commercial and agricultural property drops to 25% and most other nonresidential property to 26%. From 2027, most nonresidential property is assessed at 25%.
The table uses a $600,000 actual value and Denver's 2025 mill levies of 27.328 mills for local government and 52.274 mills for schools. Special district levies in some neighborhoods would add to these figures.
| Item | Residential rental | Commercial building |
|---|---|---|
| Actual value | $600,000 | $600,000 |
| Local assessed value (6.25% / 27%) | $37,500 | $162,000 |
| School assessed value (7.05% / 27%) | $42,300 | $162,000 |
| Local tax at 27.328 mills | $1,024.80 | $4,427.14 |
| School tax at 52.274 mills | $2,211.19 | $8,468.39 |
| Total 2025 tax | $3,235.99 | $12,895.53 |
The same building value produces about four times the tax when it is classified commercial. For 2026, the commercial assessed value on this property falls to $150,000, and the residential local assessed value would be $36,720 at 6.8% after the $60,000 reduction, or $36,180 if the 6.7% rate applies. Because the classification and the assessed value drive the bill, investors should check every notice. Denver's FAQ sets June 8 each year (or the next business day) as the deadline to file a protest, and our guide to property tax appeals explains how to build the file from your operating statements and rent rolls.
Short-term rentals add a sales-type tax layer that long-term rentals do not have. Denver's Tax Guide Topic No. 97 on short-term rentals explains that the city's ordinance allows primary residences to be rented to guests for less than 30 consecutive days, and that hosts need both a business license and a lodger's tax license.
The rate structure is set out in that guide. Denver imposes lodger's tax of 10.75% on lodging purchased for less than 30 consecutive days, and the state, RTD and special district levies bring the total charged in the city to 14.75%. Denver's business tax page breaks the state-level portion into 2.90% state, 1.00% RTD and 0.10% special district.
Collection depends on how the booking is paid. A lodging platform is the vendor responsible for Denver lodger's tax when the payment runs through the platform and the platform is the merchant of record. Otherwise the host collects and remits. Hosts also owe sales or use tax on items such as linens and furnishings bought for the rental, and the Denver occupational privilege tax.
A Denver host takes $1,800 of nightly charges and $200 of cleaning fees through direct bookings in one month. Cleaning fees are taxable lodging charges in the guide's examples, while refundable security deposits are not.
| Item | Amount |
|---|---|
| Taxable lodging charges | $2,000 |
| Denver lodger's tax (10.75%) | $215 |
| State, RTD and district tax (4.00%) | $80 |
| Total tax to collect (14.75%) | $295 |
Two accounting points follow. Lodger's tax is due at the time of sale, so a booking paid in October for a February stay is reported in October. The lodger's tax return is a gross receipts return, so ordinary business expenses cannot be deducted against it. Mountain towns outside Denver set their own lodging taxes, so a portfolio with properties in several jurisdictions needs one tax liability account per jurisdiction. For the federal side of short-term rentals, see our explanation of the IRS short-term rental tax loophole. Sales tax on goods you sell to guests is covered in our Colorado sales tax guide.
The DOR guidance on nonresidents requires the closing agent to withhold Colorado income tax when a nonresident sells Colorado real property. The amount withheld is the lesser of 2% of the sales price of the nonresident's interest or the nonresident's net proceeds, and it is remitted with Form DR 1079. On a $500,000 sale where the seller nets $180,000, the closing agent withholds $10,000. The DOR treats this withholding as a prepayment that the seller claims on the Colorado return, refundable if it exceeds the tax owed, so the books should record it as a prepayment and the return should claim it.
Most state tax problems start in the books well before the return. A practical list for Colorado owners:
Comparing Colorado with other markets can help multi-state investors plan. Our state guides cover Dallas real estate accounting under Texas rules and Phoenix real estate bookkeeping under Arizona rules.
What is the Colorado income tax rate on rental income for 2026? Colorado taxes rental income at its flat individual rate. The rate was 4.4% for 2025, and the DOR's 2026 withholding worksheet uses 4.40%. A temporary reduction can apply in a year when state revenue exceeds its limit, as happened in 2024 at 4.25%, so confirm the final rate in the 2026 return instructions.
Does Colorado allow federal bonus depreciation? Colorado starts from federal taxable income and its list of required additions contains no depreciation adjustment, so the federal 100% bonus deduction generally flows through. Confirm this against the 2026 return instructions once the DOR publishes them. Federal passive loss limits still apply, and a loss suspended federally is suspended for Colorado too.
What are Colorado's property assessment rates for 2026? Under HB24B-1001, residential property is assessed at 6.8% (or 6.7%) for local governments after a value reduction, with the school district rate carried forward from 2025. Commercial property is assessed at 25% and most other nonresidential property at 26%.
How much tax applies to a Denver short-term rental? Denver lodger's tax is 10.75% and the total charged in the city is 14.75% once state, RTD and special district taxes are included. A lodging platform collects Denver's tax when it processes the payment and is the merchant of record. Otherwise the host collects and remits it.
What withholding applies when a nonresident sells Colorado property? The closing agent generally withholds the lesser of 2% of the sales price or the seller's net proceeds and remits it with Form DR 1079. Gains on Colorado real property are Colorado-source income, and the seller claims the withholding on the Colorado return.
Madras Accountancy provides bookkeeping, tax preparation support and financial reporting for real estate investors, property owners and the CPA firms that serve them, including fixed asset registers, passive loss tracking and multi-jurisdiction lodging tax accounts. To discuss your Colorado properties, contact our team.
The section 4960 excise tax is 21% of nonprofit pay over $1M. From 2026 it covers all employees. See the medical carve-outs, Form 4720 and a worked example.
The paid family and medical leave tax credit is permanent from 2026. See the 12.5% to 25% rates, the premium option, the 6-month rule and how Form 8994 works.
Opportunity zones become permanent in 2027 under the One Big Beautiful Bill. See the new deferral, rural bonus, and the 2026 handoff.
