Summmit Mountain Rentals has an amazing blog on their website to help renters and homeowners. A great post for this time of year is their “A Step-by-Step Guide to Vacation Rental Taxes”. It is important as an income property homeowner to know what steps to take this tax season.
It’s that time of the year again: taxes. For vacation rental property owners, that getaway property in the mountains (or near the beach, etc.) does add another level of complexity to your overall tax picture. And if you’re thinking of buying a vacation property, it’s important to understand the ins and outs of vacation rental taxes, whether you’re planning to manage the unit yourself or work with a property management company like Summit Mountain Rentals.
Here’s an overview of vacation rental taxes in our area, specifically Breckenridge, Blue River and Frisco, Colorado. The good news is that with some foresight and planning — and as with all taxes, not waiting until the last minute to prepare and file — it’s all manageable.
Lodging and/or Business License
Most cities and towns require some form of this. Here’s how it breaks out for the towns where we manage vacation properties:
- Town of Breckenridge: Business and Occupational License and Tax (or “BOLT”) — $75 to $175 annually based on the number of rooms in the rental unit.
- Town of Blue River: Lodging Tax Registration Fee — $200 for the first year, $75 for subsequent years
- Town of Frisco: Business License — $75 annually
If you’re working with a property management company, let the town know and they will not bother you; your management company should handle this payment from your account. If you’re managing your property yourself, make sure you keep your license up to date by paying your fees annually.
Sales Tax: State, County and City
Collecting and paying sales tax is crucial. Why? Simply put, not doing so is a crime. Whoever is collecting the rent and taxes for your property should be responsible for making the tax payments to the governing bodies. State, county and city taxes all vary from area to area — as due the schedules for filing them — but the basic process for handling them is the same.
Here are the combined sales tax rates (including state, county, city and any applicable lodging taxes) for our area:
- Town of Breckenridge and Blue River: 11.675 percent
- Town of Frisco: 10.125 percent
Summit County and State of Colorado taxes can be remitted together here.
Property Tax: County
Depending on how your loan is structured, this is either paid directly by the owner or paid by the mortgage company as part of an escrow account. With this type of loan, homeowner insurance payments are often part of the loan package and paid by the mortgage company as well.
Whether paid by the owner or mortgage, property taxes typically fall within the responsibilities of the owner. One exception: We do have some owners who live outside of the United States, and it’s much simpler for everyone if we pay their property taxes out of their account.
Income Tax: IRS and State
Most people who’ve ever filed taxes for a business know how this works — and your vacation home is, essentially, a business:
- By the end of January, your property management company will provide you a 1099-MISC form showing all your rental revenue for the previous tax year. The company is required to submit a copy of the 1099 to the IRS. Make sure you get a summary of expenses as well.
- If you’re managing your property, you should have complete records of all your rental income and expenses.
- Using the income and expense records, complete IRS form Schedule C (Form 1040), Profit or Loss From Business and submit with your federal tax returns. The total profit or loss from this form will be included on your state return as well.
Of course, a good property management company will be familiar with all of this and be able to help you every step of the way. But if you’re doing it yourself — and despite your best intentions, at the last minute — we’re happy to help. You can call me directly for advice at no charge:
Mark Waldman, Owner, Summit Mountain Rentals, 970-423-7382