Airbnb Rules in Colorado | Airbnb Laws, Taxes, and Regulations

Colorado has become a hotspot for Airbnb investments thanks to its beautiful landscapes, like the hot springs, Rocky Mountain National Park, and lively arts and music scene. But as Airbnb rentals have boomed they've brought a housing crunch with them. This has led local governments across the state to roll out a set of regulations. 

There aren’t any statewide laws, so the rules can vary a lot depending on where you are. For anyone looking to get into the Airbnb game in Colorado it's important to understand local regulations and get the right permits. 

Colorado’s Definition of a Short-Term Rental

Colorado hasn't set a clear statewide definition for what counts as a short-term rental. But there's a bill from 2020 that's still waiting to be signed. It coins a short-term rental in Colorado as a property or part of a property meant for living but rented out for short stays and is occupied by the owner for less than 30 days a year. 

A short stay is when someone rents the place for less than 30 days in a row, and pays to stay there.

Economic Effects of Short-Term Rentals on Locals

Short-term rentals have made a big splash in Colorado's local economies. They help the hospitality industry grow and spread benefits to small businesses and tourist activities. But it's not all smooth sailing. The increase in the number of properties shifting from long-term to short-term rentals is raising concerns about their wider economic effects especially as they relate to the housing crisis. 

Local policies on vacation rentals are evolving in response to these economic and social dynamics. These policies aim to find a middle ground that supports growth and maintains the health of local communities.

Types of Short-term Rentals in Colorado

In Colorado, rental properties are split into two main categories each with its own rules. Knowing which category your property falls into is an essential first step for meeting Colorado's short-term rental requirements.

Owner occupied short-term rentals

In Colorado, owner-occupied properties offer a relatively straightforward way for potential hosts to enter the short-term rental market. These properties must be in areas zoned for residential use where the owners must live in for at least 185 days each year. 

These properties must also meet the standards of lawful dwelling units, which means you can't rent out temporary setups like tents or RVs unless you have the right zoning permissions.

Non-owner occupied short-term rentals

Non-owner-occupied rentals in Colorado provide flexibility for owners who don't live on the property. Despite this flexibility, the state imposes strict spatial regulations on these rentals. 

They cannot be located within single-family zoning districts and must be at least 500 feet away from another non-owner-occupied rental to avoid over-concentration. Like the owner-occupied category, these properties must also qualify as legitimate dwelling units. 

Property managers and investors interested in this option should consult local zoning maps or contact the dedicated support at shorttermrentals@coloradosprings.gov for more information about the 500-foot rule.

Starting an Airbnb in Colorado

When starting an Airbnb business in Colorado, you don’t need any special state-level permits or licenses specifically for short-term rentals. You must however, register your business with the Colorado Secretary of State, which you can easily do online. This registration comes with a small fee typically between $20 and $50.

If you plan to set up an LLC or corporation you'll need to obtain a federal employer identification number (EIN) from the IRS, also available through an online application. If you're starting a sole proprietorship, you won’t need this.

Regarding taxes, Colorado requires a sales tax license, valid for two years, which you can apply for through the Colorado Department of Revenue. According to Colorado's short-term rental laws you must pay sales tax at both the state and local levels.

License Renewals

There's no need for specific state-issued short-term rental licenses or permits, so you won't have to worry about renewing such documents. 

However, hosts should remember that the state sales tax license is valid for only two years. To keep your vacation rental business legally compliant and continue paying sales tax, you’ll need to renew this license through the Colorado Department of Revenue once it expires.

Taxes

Like many states, Colorado requires owners of vacation rental properties to pay several different taxes. Here’s what you need to know about the taxes that apply to short-term rentals:

• Colorado Sales Tax: Charged at a rate of 2.9%.

• Local Sales Tax: Varies from 1% to 5%, determined by the county and city.

• County Lodging Tax: Typically ranges from 0.9% to 2%, depending on the county.

• Local Marketing District Tax: Rates range from 1.4% to 4%.

• Metropolitan District Tax: Usually between 0.5% and 5.5%, depending on the district.

These taxes are levied on the total listing price of your rental including cleaning fees and any other relevant charges.

It’s important to note that Airbnb collects and remits taxes on behalf of owners, you may not need to handle some of these taxes yourself. However, you should verify to ensure they offer this service in your state.

Tax deductions 

Under federal laws, if you rent out a second home for more than 14 days in a year and use it personally for up to 14 days, you qualify for vacation rental tax benefits. As a host in Colorado, tapping into these deductions can significantly reduce your expenses while boosting your cash flow and Airbnb profit margins.

Here are the business expenses that can be deducted:

• Cleaning, accounting, legal, and other business services

• Depreciation

• Home office expenses

• Maintenance costs

• Mortgage insurance premiums

• Mortgage interest

• Property taxes and other taxes

• Supplies

• Travel expenses

• Utilities

Investing in Colorado's Vacation Rental Market

Colorado is an appealing location for setting up an Airbnb. The demand for Airbnb rentals is strong and the potential for high daily rates is considerable. However short-term rental laws vary significantly from one Colorado city to another, with some local regulations being quite restrictive or even prohibitive. 

Before committing to a location it’s crucial to thoroughly investigate the local laws. Consulting with a local vacation rental manager can provide valuable insights. It's ultimately your responsibility to ensure that your rental property complies with all local requirements and regulations.

FAQs

1. What permits or licenses are required to start an Airbnb in Colorado?

To start an Airbnb in Colorado, you must register your business with the Colorado Secretary of State, which costs between $20 and $50. If establishing a limited liability company (LLC) or corporation, you'll also need a federal employer identification number (EIN) from the IRS. Additionally, you'll need a sales tax license from the Colorado Department of Revenue, which is valid for two years. This license is essential for meeting state and local tax obligations. However, no specific short-term rental permit is required at the state level.

2. What are the specific regulations to be aware of for different cities in Colorado?

Since there are no statewide laws governing short-term rentals in Colorado, regulations differ significantly across cities. For example, Denver requires a short-term rental license, limits rentals to primary residences only, and imposes occupancy limits. Colorado Springs has specific zoning rules and spatial regulations, including the 500-foot rule for non-owner-occupied rentals. Boulder prohibits non-primary residence rentals altogether. It's essential to research and understand local rules for each city before investing in a particular location.

3. What are the main differences between owner-occupied and non-owner-occupied rentals?

Owner-occupied rentals require the owner to live on the property for at least 185 days a year and must meet the lawful dwelling standards for residential zones. Non-owner-occupied rentals, on the other hand, offer flexibility for owners not living on-site. They must adhere to strict spatial regulations, including being at least 500 feet from another non-owner-occupied rental and avoiding single-family zoning districts.

4. What taxes apply to short-term rentals in Colorado?

Short-term rentals are subject to various taxes in Colorado, including:

• Colorado Sales Tax: 2.9%.

• Local Sales Tax: Varies from 1% to 5% by city or county.

• County Lodging Tax: Between 0.9% and 2%, depending on the county.

• Local Marketing District Tax: Ranging from 1.4% to 4%.

• Metropolitan District Tax: Typically from 0.5% to 5.5%.

Airbnb collects and remits some of these taxes directly, but owners should verify compliance with the Colorado Department of Revenue.

5. What are the common costs associated with starting an Airbnb in Colorado?

Starting an Airbnb in Colorado involves several initial costs, including registering your business with the Colorado Secretary of State ($20-$50) and obtaining a federal employer identification number (EIN), if needed. You'll also need a Colorado sales tax license and possibly local permits depending on the city.