Does Colorado tax capital gains on real estate?
Yes. Colorado capital gains tax on real estate is part of the state income tax, and the Department of Revenue’s 2025 filing booklet states that the income tax rate is currently 4.4%. The state’s 2026 employer withholding worksheet uses the same 4.40% rate. There are no brackets, so a $40,000 gain on a duplex and a $4 million gain on a large complex are taxed at the same percentage.
Colorado begins its return with federal taxable income. The gain you report to the IRS flows onto the Colorado DR 0104, and the 4.4% applies to it along with your wages, rent and interest. Colorado does not offer a general capital gain subtraction for rental buildings. The 2025 booklet lists only an agricultural land capital gain subtraction, limited to filers of federal Schedule F who sold Colorado farm or ranch land and capped at $100,000.
Colorado capital gains tax rate in 2026
The Colorado capital gains tax rate is 4.4% for individuals, trusts and estates, the same rate that applies to every other kind of income. Short-term and long-term gains are treated alike, and so is the part of the gain that came from depreciation.
Colorado can lower the rate for a single year when TABOR surplus revenue is large enough, as it did to 4.25% for tax year 2024. That cut does not apply for 2026. The Legislative Council’s September 2026 forecast reports that revenue for the 2025-26 budget year fell $175.9 million short of the Referendum C cap, and it does not expect the rate cut to be triggered in tax years 2027 or 2028.
Later years could change. Two competing measures are on the November 3, 2026 ballot: Amendment 87 would replace the flat tax with six brackets from 3.7% to 8.4% starting in 2027, raising tax for filers with more than about $500,000 of taxable income, and Proposition 136 would cap the rate at 4.4%. A seller with a large gain weighing a late-2026 or 2027 closing should check the result.
| Part of the gain | Federal treatment (2026) | Colorado treatment |
|---|---|---|
| Long-term gain above original cost | 0%, 15% or 20%, by taxable income | 4.4% |
| Unrecaptured section 1250 gain (past straight-line depreciation) | Up to 25% | 4.4% |
| Section 1245 recapture (personal property, cost segregation) | Ordinary income rates | 4.4% |
| Short-term gain (held one year or less) | Ordinary income rates | 4.4% |
| Net investment income tax | 3.8% above the income thresholds | No state equivalent |
How Colorado tax stacks on top of federal tax
Colorado tax is added to the federal tax on the same sale. Neither one offsets the other, so your total rate on a large apartment gain is the federal rate plus 4.4%.
For 2026, Revenue Procedure 2025-32 sets the federal long-term capital gains brackets. Married couples filing jointly pay 0% on taxable income up to $98,900, 15% up to $613,700 and 20% above that. Single filers reach 15% above $49,450 and 20% above $545,500. Depreciation you claimed on the building is taxed at up to 25% as unrecaptured section 1250 gain, and the 3.8% net investment income tax applies once modified AGI passes $250,000 on a joint return or $200,000 for a single filer.
A top-bracket seller of a Denver or Fort Collins building therefore faces about 20% to 25% federal, 3.8% NIIT and 4.4% Colorado on most of the gain. The state share is larger than in Arizona but well below what a Californian or Oregonian would owe on the same sale.
Colorado withholding for nonresident sellers
If you are a nonresident and sell Colorado real estate for more than $100,000, the closing agent must withhold the lesser of 2% of the sales price or the net proceeds otherwise due to you. The money is sent to the Department of Revenue with Form DR 1079 within 30 days of closing, and the agent also completes Form DR 1083 within the same 30 days.
The rule reaches nonresident individuals, estates and trusts, and corporations organized outside Colorado that are not qualified to do business in the state and have no staffed permanent office there. Whether you are a nonresident is judged by your last known street address on the IRS Form 1099-S or the disbursement authorization.
Withholding is a prepayment, not a separate tax. You claim it as a credit on your Colorado nonresident return for the year of the sale. If the withholding is more than the tax you owe, the difference comes back as a refund.
- Sales of $100,000 or less are exempt.
- Transfers to a lender by foreclosure or deed in lieu are exempt.
- The agent can rely on a signed affirmation that you are a Colorado resident, a corporation with a permanent place of business in Colorado, a partnership under IRC section 761(a), or selling a principal residence.
- You can also sign an affirmation that no Colorado income tax is reasonably estimated to be due, for example when the gain is fully deferred.
Do nonresidents owe Colorado tax on a property sale?
Yes. Form DR 1083 tells sellers that nonresidents of Colorado are taxed on gains from the sale of Colorado real estate to the extent the gains are included in federal taxable income. An owner who lives in Texas and sells a 12-unit building in Aurora files a Colorado nonresident return and pays 4.4% on that gain, even though Texas has no income tax.
Residents are taxed on gains wherever the property sits. If you live in Colorado Springs and sell a building in Kansas, Colorado taxes the gain, and you may get a credit for tax paid to the other state. Moving out of Colorado before the sale does not end Colorado’s claim on a Colorado building, because the gain is Colorado-source income either way.
Depreciation recapture in Colorado
Colorado taxes depreciation recapture at the same flat 4.4% as the rest of the gain. Because the state uses one rate, there is no Colorado version of the 25% federal cap and no separate state rate for section 1245 recapture from a cost segregation study.
The bigger issue is usually the federal side. On a building you have held for 15 years, the depreciation taken can be a large share of the gain, and the IRS taxes it at up to 25%. Colorado simply adds 4.4% to whatever amount reaches federal taxable income. If you ever made Colorado-only adjustments to depreciation, ask your preparer to check that your Colorado basis matches your federal basis before you file.
Worked example: selling a $2 million apartment building in Colorado
A married couple in the top federal bracket sells a Lakewood apartment building for $2,000,000. They bought it in 2014 for $1,100,000, have taken $400,000 of straight-line depreciation and pay $110,000 in selling costs. Their adjusted basis is $700,000, the amount realized is $1,890,000 and the total gain is $1,190,000.
| Tax | Base | Rate | Amount |
|---|---|---|---|
| Federal, unrecaptured section 1250 gain | $400,000 | Up to 25% | $100,000 |
| Federal, remaining long-term gain | $790,000 | 20% | $158,000 |
| Net investment income tax | $1,190,000 | 3.8% | $45,220 |
| Federal total | $303,220 | ||
| Colorado income tax | $1,190,000 | 4.4% | $52,360 |
| Combined federal and Colorado | $355,580 |
What the example shows
Colorado takes $52,360, about 15% of the combined bill, and the federal government takes the other $303,220. Every $100,000 of gain adds $4,400 of Colorado tax, which makes the math easy to run on your own numbers. The capital gains tax calculator and the depreciation recapture calculator will do the federal side.
If the same couple lived in Arizona when they sold, the result changes in two ways. They would still owe the $52,360 to Colorado on a nonresident return, and the closing agent would withhold $40,000 (2% of the $2,000,000 price) at closing. They would pay the remaining $12,360 to Colorado when they file. Arizona taxes its residents on the same gain but generally allows a credit for tax paid to another state, so the Colorado tax is not simply added on top.
Ways to lower or defer the Colorado tax
The tax on a Colorado sale can be deferred or spread out, though not avoided by moving, since the building’s gain stays Colorado-source.
- A 1031 exchange defers both federal and Colorado tax when you reinvest in other investment real estate.
- An installment sale spreads the gain, and the Colorado tax, over the years you collect payments.
- Holding until death gives heirs a stepped-up basis, which erases the built-in gain for both returns.
- Selling in a year when your other income is low can lower the federal rate on part of the gain, though the Colorado rate stays at 4.4%.
- Tracking capital improvements raises your basis on both returns and lowers the gain.
What to gather before you sell
Most of the Colorado math is settled by your federal figures, so the paperwork is about basis, depreciation and residency. Pull these together before you sign a contract, because some of them change what happens at the closing table.
- The closing statement from your purchase and records of every capital improvement since, which set your adjusted basis.
- Your depreciation schedule, including any cost segregation study, so your preparer can split the gain between 25% and 20% federal rates.
- Proof of residency if you live in Colorado, so the closing agent can accept a resident affirmation and skip the 2% withholding.
- If you live elsewhere, an estimate of your Colorado tax, so you know whether the 2% withheld will cover it or leave a balance due.
- A decision on a 1031 exchange, since the intermediary agreement has to be signed before the sale closes.
How a 1031 exchange changes the Colorado bill
A 1031 exchange defers Colorado tax along with federal tax, because Colorado starts from federal taxable income and a deferred gain never reaches it. In the Lakewood example, a full exchange into a property of $2,000,000 or more, with all $1,890,000 of net proceeds reinvested, would put off the $303,220 federal bill and the $52,360 Colorado bill.
Any cash you keep is boot, taxed by both. Taking $100,000 out of the exchange would cost $4,400 in Colorado tax plus federal tax on the same amount. Colorado has no clawback, so exchanging into a building in another state does not create a Colorado tracking form. A nonresident seller doing a full exchange may be able to sign the no-tax-due affirmation so the 2% is not withheld; we cover that and the state’s rules for intermediaries on our 1031 exchange in Colorado page.
Selling a Colorado apartment building to Skyline
Skyline buys apartment buildings with five or more units in Colorado, from Denver, Aurora and Lakewood to Colorado Springs, Fort Collins and Greeley. We buy directly, close on your timeline, and can work inside 1031 deadlines. If the tax on a sale is the reason you are holding, we can set a closing date that fits your exchange or your tax year.
Selling? Spread the tax with seller-carry terms
If a large tax bill is what is keeping you from selling, an installment sale may help. When you carry part of the price as a note, the gain is generally reported as you receive payments instead of all in the year of sale. Some parts of the gain, such as certain depreciation recapture, can still be due up front, so run the numbers with your CPA first.
Skyline Capital Investments buys apartment buildings with five or more units and can offer seller-carry terms, or a delayed closing that fits your 1031 timeline. Send the address and unit count and we typically respond within 48 hours. How seller financing works · How an installment sale is taxed · Seller financing calculator.
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