Colorado Death Tax: What Heirs Need to Know in 2025
Last updated: January 14, 2026 · 7 min read
Quick Answer: Colorado Has No Death Tax
Colorado does not have an estate tax, inheritance tax, or any form of "death tax." The state repealed its estate tax in 2005. You will not owe Colorado state taxes simply for inheriting property. However, capital gains tax may apply when you sell.
If you've inherited property in Colorado, you may be worried about "death taxes" eating into your inheritance. The good news is that Colorado is one of the most tax-friendly states for heirs—there is no state-level death tax of any kind. This guide explains what taxes actually apply and what heirs should focus on instead.
Key Takeaways
- No Colorado estate tax — repealed in 2005
- No Colorado inheritance tax — never owe state tax for inheriting
- Federal estate tax only applies to estates over $13.99M (2025)
- Capital gains tax is what most heirs should focus on
- Stepped-up basis significantly reduces capital gains when selling
Disclaimer: This guide provides general information about taxes on inherited property in Colorado. Tax laws change frequently. This is not tax advice. Consult with a qualified CPA or tax attorney for guidance on your specific situation.
Colorado Has No Death Tax
Let's address this directly: Colorado does not have any form of "death tax." This includes:
- No state estate tax — Colorado repealed its estate tax effective December 31, 2004
- No state inheritance tax — Colorado does not tax heirs for receiving inherited assets
- No state gift tax — Colorado has no tax on gifts made during your lifetime
This makes Colorado one of the most favorable states in the country for inheriting property. Only 12 states plus Washington D.C. have an estate tax, and only 6 states have an inheritance tax. Colorado is neither.
A Brief History
Colorado had an inheritance tax starting in 1927, which was replaced with an estate tax in 1980. When federal legislative changes eliminated the state death tax credit between 2002 and 2004, Colorado's estate tax effectively ended. No Colorado estate tax filing is required for individuals who died after December 31, 2004.
Federal Estate Tax Thresholds
While Colorado has no death tax, the federal estate tax still exists—but it only affects very large estates. Here are the current exemption amounts:
Federal Estate Tax Exemptions
| Year | Individual | Married Couple |
|---|---|---|
| 2024 | $13.61 million | $27.22 million |
| 2025 | $13.99 million | $27.98 million |
| 2026+ | $15.00 million* | $30.00 million* |
*The One Big Beautiful Bill Act (enacted July 2025) made the higher exemption permanent and set $15 million as the 2026 baseline, indexed for inflation.
What This Means for Most Heirs
The vast majority of estates fall well below these thresholds. Unless the deceased's total estate (all assets including real estate, investments, life insurance, and business interests) exceeds $13.99 million in 2025, there is no federal estate tax to worry about.
For context, fewer than 0.1% of estates owe any federal estate tax. If you're inheriting a typical family home in Colorado, federal estate tax is almost certainly not a concern.
What Heirs Should Actually Worry About
Instead of death taxes, Colorado heirs should focus on capital gains tax, which applies when you sell inherited property for more than its value at the time of inheritance.
Capital Gains Tax Rates
When you sell inherited property in Colorado, you may owe capital gains tax on any appreciation after the date of death:
- Colorado state: Flat 4.4% on all capital gains
- Federal: 0%, 15%, or 20% depending on your taxable income
- Net Investment Income Tax: Additional 3.8% for high-income individuals
Good news: The stepped-up basis rule significantly reduces capital gains for inherited property. You only pay tax on appreciation after you inherit—not on gains during the previous owner's lifetime.
Property Tax Considerations
As the new owner, you are responsible for ongoing property taxes. Unlike some states (like California), Colorado does not cap property tax reassessments when property changes hands through inheritance. The county assessor may reassess the property at current market value, which could increase annual property taxes.
Stepped-Up Basis: The Key Tax Benefit
The stepped-up basis is the most important tax benefit for heirs. Here's how it works:
What Is Stepped-Up Basis?
When you inherit property, your cost basis for tax purposes "steps up" to the fair market value on the date of the previous owner's death. This eliminates capital gains on all appreciation during their lifetime.
Example
Scenario:
- Your parents bought their home in 1990 for $150,000
- Fair market value at their death: $650,000
- Your stepped-up basis: $650,000
- Appreciation you inherited tax-free: $500,000
If you sell the home for $650,000 shortly after inheriting it, you owe zero capital gains tax. The $500,000 in appreciation during your parents' ownership is completely eliminated for tax purposes.
Key point: You only pay capital gains tax on appreciation after you inherit. This is why selling quickly after inheritance often minimizes taxes.
How to Minimize Capital Gains Tax
Since capital gains (not death taxes) are the main tax concern for Colorado heirs, here are strategies to minimize your tax burden:
1. Sell Quickly After Inheriting
The stepped-up basis is most valuable when you sell close to the date of inheritance. The sooner you sell, the less post-inheritance appreciation and the lower your capital gains tax.
2. Get an Appraisal at the Date of Death
Document the fair market value at the time of inheritance with a professional appraisal. This establishes your stepped-up basis and protects you if the IRS questions your cost basis later.
3. Track All Selling Costs
Selling costs reduce your taxable gain. Keep records of real estate commissions, title insurance, closing costs, legal fees, and any necessary repairs for the sale.
4. Consider a 1031 Exchange
If you want to invest in other real estate, a 1031 exchange allows you to defer capital gains by reinvesting in like-kind property. This requires strict compliance with IRS rules and timing requirements.
5. Consult a Tax Professional
Given the value of most inherited properties, working with a CPA or tax attorney is a wise investment. They can help you optimize your tax situation based on your specific circumstances.
Frequently Asked Questions
No. Colorado does not have a state estate tax, inheritance tax, or any form of "death tax." The state repealed its estate tax effective December 31, 2004. You will not owe any Colorado state taxes simply for inheriting property.
No. Colorado eliminated its estate tax for deaths occurring after December 31, 2004. However, the federal estate tax still applies to very large estates—those exceeding $13.99 million for individuals in 2025 ($15 million in 2026).
No. Colorado has no inheritance tax. Some states tax heirs when they receive inherited assets, but Colorado is not one of them. You can inherit property in Colorado without owing state inheritance taxes.
Since Colorado has no death tax, there is nothing to avoid at the state level. For federal estate tax (which only applies to estates over $13.99 million in 2025), strategies include lifetime gifting, establishing trusts, and charitable giving. Most Colorado estates are well below the federal threshold.
The main tax concern for Colorado heirs is capital gains tax if you sell the property. Thanks to the stepped-up basis, you only pay capital gains on appreciation after the date of death. Colorado has a flat 4.4% capital gains tax rate, plus federal rates of 0%, 15%, or 20% depending on income.
The federal estate tax exemption is $13.99 million per individual for 2025 ($27.98 million for married couples). Starting in 2026, the exemption increases to $15 million due to the One Big Beautiful Bill Act. Estates below these thresholds pay no federal estate tax.
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