Colorado Inherited Property Taxes: What Heirs Need to Know
Last updated: January 10, 2026 · 9 min read
Inheriting property in Colorado comes with tax implications that every heir should understand. The good news is that Colorado has some of the most favorable inheritance tax treatment in the country—there is no state inheritance or estate tax. However, you may still face federal taxes and ongoing property tax obligations. This guide explains what you need to know.
Key Takeaways
- Colorado has NO state inheritance tax or estate tax
- Stepped-up basis eliminates capital gains on lifetime appreciation
- Capital gains tax only applies to appreciation after inheritance
- Federal estate tax only affects estates over $13.61 million (2024)
- Property taxes continue and are the heir's responsibility
Disclaimer: This guide provides general information about taxes on inherited property in Colorado. Tax laws are complex and change frequently. This is not tax advice. Consult with a qualified CPA or tax attorney for guidance on your specific situation.
Colorado Has No Inheritance Tax
Let's start with the good news: Colorado does not have a state inheritance tax. You will not owe any Colorado state taxes simply for receiving inherited property.
Additionally, Colorado has no state estate tax. Some states tax the estate before distribution to heirs, but Colorado is not one of them.
This makes Colorado one of the most favorable states for inheriting property from a state tax perspective. Only federal taxes and ongoing property obligations need to be considered.
Understanding Stepped-Up Basis
The stepped-up basis is one of the most significant tax benefits for inherited property. Here is how it works:
What Is Cost Basis?
Cost basis is the value used to calculate capital gains when you sell property. Normally, your basis is what you paid for the property plus improvements.
How the Step-Up Works
When you inherit property, your cost basis "steps up" to the fair market value at the date of the previous owner's death—not what they originally paid.
Example
Scenario:
- Your parent bought the house in 1985 for $80,000
- Fair market value at their death: $450,000
- You inherit the property
- Your stepped-up basis: $450,000 (not $80,000)
This eliminates $370,000 in potential capital gains that would have applied if your parent had sold the property themselves.
Why This Matters
If you sell the inherited property quickly at or near the stepped-up value, you may owe little to no capital gains tax. The longer you hold the property and the more it appreciates, the more capital gains you may owe when you sell.
Capital Gains Tax on Inherited Property
When you sell inherited property for more than your stepped-up basis, you may owe capital gains tax on the difference.
Calculating Your Gain
Formula:
Capital Gain = Sale Price - Stepped-Up Basis - Selling Costs
Example
- Inherited value (stepped-up basis): $450,000
- Sale price 2 years later: $480,000
- Selling costs: $5,000
- Capital gain: $480,000 - $450,000 - $5,000 = $25,000
Tax Rates
Capital gains tax rates depend on how long you owned the property and your income level:
- Long-term (held over 1 year): 0%, 15%, or 20% federal rate depending on income, plus Colorado's 4.4% flat income tax rate
- Short-term (held 1 year or less): Taxed as ordinary income (higher rates)
Note: Your holding period for inherited property starts from the date of the previous owner's death, and inherited property automatically qualifies as long-term regardless of how soon you sell.
Federal Estate Tax
Federal estate tax applies to the estate before distribution to heirs—it is paid by the estate, not individual heirs. However, it only affects very large estates.
2024 Exemption
The federal estate tax exemption for 2024 is $13.61 million per person ($27.22 million for married couples). Estates below this threshold pay no federal estate tax.
What This Means for Most Heirs
Unless the deceased's total estate (all assets, not just real estate) exceeds $13.61 million, federal estate tax is not a concern. The vast majority of inherited properties in Colorado are not subject to federal estate tax.
Note: The current high exemption amount is set to decrease significantly after 2025 unless Congress acts. Consult a tax professional for the most current information.
Property Tax Obligations
Property taxes continue regardless of ownership changes. As the new owner of inherited property, you need to understand your obligations.
Ongoing Property Taxes
- Property taxes are due twice a year in Colorado (February and June)
- As the heir, you are responsible for taxes from the date of inheritance
- If you sell the property, taxes are typically prorated at closing
Past-Due Taxes
If property taxes were not paid before or during probate, they become a lien on the property. These must be paid from estate funds or settled at closing when you sell.
No Reassessment Exemption
Unlike some states, Colorado does not automatically reassess property at death for property tax purposes. However, property values are reassessed regularly according to the county's schedule.
Strategies for Minimizing Taxes
Here are legitimate strategies to minimize your tax burden on inherited property:
1. Sell Quickly
The stepped-up basis is most valuable when you sell close to the date of inheritance. The sooner you sell, the less appreciation (and thus fewer capital gains) you will have.
2. Document the Stepped-Up Basis
Get an appraisal at or near the date of death to establish your stepped-up basis. This documentation is essential if questions arise later.
3. Track All Selling Costs
Selling costs reduce your taxable gain. Keep records of:
- Real estate commissions
- Title insurance and closing costs
- Legal fees related to the sale
- Any repairs required 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 is complex and requires strict compliance with IRS rules.
5. Consult a Tax Professional
Given the complexity of tax law and the value of most inherited properties, working with a CPA or tax attorney is a wise investment.
Frequently Asked Questions
No. Colorado does not have a state inheritance tax or estate tax. You will not owe Colorado state taxes simply for inheriting property. However, federal estate tax may apply to very large estates (over $13.61 million in 2024).
You may, but it is often minimal due to the stepped-up basis. You only owe capital gains tax on appreciation after the date of death. If you sell quickly at near the inherited value, you may owe little to no capital gains tax.
When you inherit property, your cost basis for tax purposes "steps up" to the fair market value at the date of the previous owner's death. This eliminates capital gains on all appreciation during their lifetime.
Typically, you use the fair market value on the date of death. An appraisal is the most reliable method. For estates requiring a federal estate tax return, the value from that return can be used.
Yes, property taxes continue regardless of ownership changes. As the new owner, you are responsible for property taxes from the date of inheritance. Unpaid taxes from the estate period should be paid from estate funds.
Each heir reports their share of any capital gain on their individual tax return. The stepped-up basis and gain are divided according to ownership percentages. Each heir is also responsible for their share of property taxes.
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