How Do Taxes Work for Rental Income?

Rental income in Colorado gets taxed as ordinary income on Schedule E, with deductions for mortgage interest, property taxes, insurance, repairs, depreciation (27.5 years straight-line), and 50% of management fees—netting passive losses that offset other income up to $25K if AGI under $100K, making Denver real estate a tax-efficient wealth builder in the Colorado housing market.

Key Tax Components for Rentals

After 15+ years in Denver real estate and thousands of transactions, I walk clients through Schedule E basics: report all rents received, subtract ordinary expenses (utilities you pay, cleaning, HOA), then depreciation shields 3-4% of basis yearly—$600K property deducts $21K annually. Interest dominates early loans; capex like roofs depreciates over 39 years for commercial. Qualified Business Income (QBI) deduction cuts 20% off net for passives. Self-employment tax skips if managed hands-off. Quarterly estimates avoid penalties; 1031 exchanges defer gains on sales. Audits flag mismatched logs—keep receipts five years.

Losses carry forward indefinitely.

Denver-Specific Tax Nuances

Highlands Ranch real estate rentals factor Douglas County assessments (0.57% effective) into deductions near Mountain Vista schools, where HOA fees fully deduct but reserves complicate basis—stable values minimize reassessments in balanced cycles. Littleton bungalows in Jefferson County (0.62%) flex basement ADUs for extra depreciation in LPS zones, lighter covenants easing tracking. Core Denver urban properties blend city/county taxes (0.65%) with higher insurance writes-offs from theft risks. Winters defer hikes; springs trigger biennial jumps. Compared to Littleton simplicity, Highlands Ranch HOAs demand detailed reserve accounting for clean filings.

Local assessors handle appeals.

Practical Advice for Buyers and Sellers

Deduction	Est Savings ($600K)	Tracking Tip
Depreciation	$7K/year	Cost segregation study
Interest/Taxes	$15K/year	Year-end statements
Ops Expenses	50% rents	QuickBooks categorization

Landlords, hire CPAs for cost seg—max QBI, file extensions if needed; screen for tax-smart rehabs. Sellers to rentals, provide expense histories—1031 prep with basis docs.

My hands-on, concierge-level service optimizes tax strategies block-by-block, weighs school/HOA fits through market cycles, builds pricing from local sales, and negotiates relentlessly for deduction-maxing buys. Clients are long-term relationships and friends, not transactions—integrity, honesty, transparency, and relentless work ethic minimize IRS bites.

If rental tax questions hit your Denver real estate plans—Littleton, Highlands Ranch breakdowns—reach out anytime. I’m here for a no-pressure conversation and honest guidance tailored to the Colorado housing market.

Mile High Home Group – Welcome to Denver