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# Rental Property in a Colorado Divorce: Value, Income, and Hidden Tax
- URL: https://blog.denverdivorce.com/rental-property-colorado-divorce/
- Published: 2026-10-19T14:00:00.000Z
- Updated: 2026-10-19T13:59:59.000Z
- Description: A rental in a Colorado divorce is three things at once: an asset to value, an income stream that drives support, and a deferred tax bill. How courts characterize it, who runs it during the case, and the three realistic exits.
- Author: Aaron Herzberg
- Tags: Property Division, Tax

A rental property is the asset most likely to be mishandled in a Colorado divorce, because it is three things at once. It is property to be characterized and valued. It is an income stream that feeds the child support and maintenance calculations. And it carries a tax bill, from years of depreciation, that follows whoever keeps it. A settlement that says "worth $800,000, split it" has usually missed two of the three.

The short version: Colorado courts value the building as of the decree, count the net rent as income for support, and let the tax consequences into the math only when a sale or a taxable event is actually likely. Everything else is negotiation.

## Marital, Separate, or Both

Under [C.R.S. § 14-10-113](https://law.justia.com/codes/colorado/title-14/dissolution-of-marriage-parental-responsibilities/article-10/section-14-10-113/?ref=blog.denverdivorce.com), property acquired during the marriage is presumed marital regardless of whose name is on the deed. A rental bought during the marriage, with either spouse's earnings, is marital. A building one spouse owned before the wedding, or inherited, starts out separate, but the increase in its value during the marriage is marital under subsection (4), and the rent it produced during the marriage is marital income (*In re Marriage of Foottit*, 1995).

If a premarital fourplex was worth $500,000 at the wedding and $900,000 at the decree, the $400,000 of appreciation is marital. Mortgage principal paid down with rent or earnings during the marriage is a marital contribution the court can credit as well. The spouse claiming the separate interest carries the burden of proving the date-of-marriage value and tracing the asset forward (*In re Marriage of Capparelli*, 2024 COA 103M), which usually means a retrospective appraisal.

Retitling changes everything. Putting a separate rental into joint names is presumed a gift to the marriage, rebuttable only by clear and convincing evidence. In *In re Marriage of Smith* (2024 COA 95), a property that was never retitled still became marital, because the husband had treated it as joint and said so. The deed is evidence, not the answer.

![Row houses in Denver](https://storage.ghost.io/c/9c/7f/9c7f0f22-0ab1-4be3-88a9-68ce015e9524/content/images/2026/09/rental-property-colorado-divorce.jpg)

Row houses in Denver. Photo: Carol M. Highsmith, Library of Congress (public domain).

## What the Building Is Worth

Value is fixed as of the decree or the permanent orders hearing, whichever comes first (§ 14-10-113(5)). For a rental, the appraiser has two methods. The sales-comparison approach looks at recent sales of similar buildings. The income approach capitalizes the net operating income, which is how investors actually price multi-unit property. A good appraisal reconciles both; comparables alone on a six-unit building miss the point.

Three facts move the number and deserve their own evidence. Tenants in place with below-market leases reduce value, because a buyer inherits the leases. Deferred maintenance reduces value if it is documented with bids, not adjectives. And a self-managed property with cash rents and thin records will be valued on the records that exist.

An owner may give an opinion of value with a foundation (*In re Marriage of Plummer*, 1985), but an appraisal report is hearsay unless the appraiser testifies. The county assessor's actual value is admissible, though rarely persuasive against a live appraiser. Under C.R.C.P. 16.2(g) the parties are expected to try for a joint appraiser first; either side can hire its own.

## Rent Is Income for Support

Both the child support statute, C.R.S. § 14-10-115(5)(a), and the maintenance statute, C.R.S. § 14-10-114(8)(c), list rents as gross income. For rental income the statutes use gross receipts minus the ordinary and necessary expenses required to produce them. The accelerated component of depreciation is not an ordinary and necessary expense for this purpose, so it is added back, although the court may consider straight-line depreciation. Mortgage principal is not an expense either.

The practical effect: a spouse whose tax return shows a rental "loss" of $5,000 after $30,000 of depreciation may have $25,000 of income for support purposes. Whoever is awarded the property is awarded its income going forward, and that income belongs in that spouse's support calculation. That is not double counting; it is what ownership means.

## The Hidden Tax Costs

Transfers between spouses incident to divorce are tax-free under I.R.C. § 1041, and the recipient takes the transferor's basis. For a rental that basis has been reduced every year by depreciation. The spouse who keeps the building inherits the entire depreciation history, and on a later sale the depreciation is recaptured as unrecaptured section 1250 gain at a federal rate of up to 25 percent, with ordinary capital gains tax, the 3.8 percent net investment income tax where it applies, and Colorado tax on the rest.

A round-number example: a duplex bought for $400,000, depreciated by $150,000, now worth $800,000\. The keeping spouse's basis is $250,000 and the built-in gain is $550,000, of which $150,000 is recapture. The federal and state tax on a sale can exceed $130,000\. A spouse who takes that duplex against $800,000 of cash and retirement money has taken the short end by six figures. If the property came from a prior 1031 exchange, the deferred gain from the earlier property rides along too.

Two more wrinkles. Suspended passive losses do not transfer as losses; under I.R.C. § 469(j)(6) they are added to the recipient's basis. And a former marital home converted to a rental can still qualify for part of the § 121 exclusion, but depreciation taken after May 1997 is never excluded. Colorado courts may account for taxes that are likely to be incurred (*In re Marriage of Finer*, 1996), but only if someone proves them.

## Who Runs It While the Case Is Pending

The automatic temporary injunction under C.R.S. § 14-10-107(4)(b) keeps the status quo: neither spouse may transfer, encumber, or dispose of marital property outside the usual course of business without consent or a court order. Collecting rent, paying the mortgage, and fixing a furnace are the usual course of business. A discounted five-year lease to a friend, a new loan against the equity, or a deliberate vacancy is not.

Rent collected during the case is marital income and has to be accounted for. The cleanest arrangement is a written interim agreement, or a temporary order under C.R.S. § 14-10-108, naming one spouse as manager, requiring monthly statements, and directing where net rent goes. Security deposits are tenant money, and they should be identified and preserved.

## Sell, Buy Out, or Co-Own for a Term

There are three realistic exits, and the mortgage decides which ones are open.

- Sell and split. Existing leases survive the sale, so timing the listing around lease expirations affects price. Selling costs and the tax bill are real once a sale is ordered, and both belong in the division.
- Buy out. One spouse keeps the property and equalizes with other assets. The mortgage does not care about the decree. For residential property of one to four units, federal law bars the lender from calling the loan because of a divorce transfer (12 U.S.C. § 1701j-3(d)(7)), but the departing spouse stays liable until the loan is refinanced or assumed. Investor loans on larger buildings have no such protection.
- Co-own for a term. Colorado courts disfavor continued joint ownership after a decree (*In re Marriage of Paul*, 1991), and an order that simply gives each spouse a percentage of everything is not a division at all (*In re Marriage of Simon*, 1993). Parties can still agree to it. Done properly it looks like a business deal: an operating agreement or written co-ownership agreement naming the manager, allocating cash flow and capital calls, setting a sale or buyout date, and fixing the appraisal mechanism for the exit.

The buyout is the most common outcome and the most often botched: priced at gross value with no tax adjustment, and papered with a promise to refinance "when possible." A refinance deadline with a forced-sale fallback is the difference between a settlement and a second lawsuit.

## Talk to a Denver Divorce Attorney About Rental Property

Aaron Herzberg is a divorce attorney in Greenwood Village, Colorado, serving Denver and the Front Range, with more than 30 years of trial experience and a practice focused on divorce, custody, and financially complex family law. Rental property needs an appraisal, a support analysis, and a tax projection before anyone proposes a number, and all three take time. A first meeting is a paid consultation, not a free call and not a sales pitch.

Read the full guides on DenverDivorce.com: [Real Estate in a Colorado Divorce](https://denverdivorce.com/practice-areas/real-estate-division.html?ref=blog.denverdivorce.com) and [Tax Strategy in a Colorado Divorce](https://denverdivorce.com/practice-areas/tax-strategy.html?ref=blog.denverdivorce.com).

*Educational information only, not legal advice. Reading this article does not create an attorney-client relationship.*