Colorado Capital Gains Tax, Explained

The federal system sorts your gains into buckets: short-term at ordinary rates, long-term at 0%, 15%, or 20%, with the 3.8% NIIT layered on above $200K/$250K MAGI. Colorado skips all of it. Every dollar of gain — stock, crypto, a rental in Denver, a business you built — is ordinary income to the state, taxed at one flat 4.4%.

The math is refreshingly legible. Sell for a $150,000 gain and Colorado's share is $6,600 — 4.4%, full stop. No brackets to climb, no surcharge thresholds to trip, no separate treatment for the recapture slice of a rental sale. That predictability makes the state side of a Colorado transaction the easy part of the model; the federal side is where the planning lives.

Notice the first row: a long-term gain that the IRS taxes at 0% is still Colorado income. For retirees and low-income-year sellers engineering gains into the federal 0% bracket, the state's 4.4% is the entire tax bill — small, but not zero.

Here's the structural feature that makes Colorado planning simple: the state return starts from your federal numbers. Some states run their own capital-gains schedules, disallow federal deferrals, or bolt on addback after addback. Colorado mostly just takes what the IRS sees and multiplies by 4.4%.

The consequence: every federal move you make does double duty, with no separate state election to file or track.

• Loss harvesting — losses that offset gains federally shrink the Colorado number in the same motion.
• Gain timing — a gain pushed into a low-income year saves at both layers at once.
• 1031 exchanges — gain deferred federally generally stays out of Colorado income too, with no state-side tracking form to babysit.
• Installment sales — spreading a gain across years spreads the Colorado bill along with the federal one.

Colorado's Taxpayer's Bill of Rights caps how much revenue the state can keep. When collections run over the cap, the surplus goes back to taxpayers — and in some recent years, one of the refund mechanisms has been a temporary cut to the flat income tax rate itself.

For a capital gain, that matters in the most direct way possible: gains ride the same flat rate as everything else, so a TABOR reduction year makes every realized gain slightly cheaper with zero effort on your part. The catch is that the reductions are temporary and surplus-dependent — the standard rate is 4.4%, and whether a given year dips below it isn't knowable far in advance.

On the federal side, a rental sale splits into layers: the depreciation you claimed comes back as recapture at up to 25%, the remaining gain gets long-term rates, and the NIIT can ride on top. Colorado flattens the whole stack — recapture, appreciation, all of it — into ordinary income at 4.4%.

Worked example: you sell a Denver rental for a $200,000 total gain, of which $60,000 is depreciation recapture, and you're in the 15% federal bracket. Federal: $60,000 × 25% = $15,000, plus $140,000 × 15% = $21,000 — $36,000. Colorado: $200,000 × 4.4% = $8,800, no special recapture rate, no separate schedule. Combined: about $44,800 before any NIIT.

Two planning notes follow. First, because Colorado's bill scales with the total gain, the state side of recapture is mild — the federal 25% layer is where recapture hurts, so sizing your accumulated depreciation before you list is the useful homework. Second, if a 1031 exchange is on the table, the deferral generally carries the Colorado tax along with the federal — one decision, both layers.

Colorado has one of the densest short-term-rental markets in the country — Summit County, Steamboat, the Vail valley, and half the Front Range. A large share of those owners bought in with the STR strategy: cost segregation plus accelerated depreciation to front-load deductions against high W-2 or business income.

Selling is where that strategy runs in reverse. The depreciation that sheltered income on the way in generally comes back as recapture on the way out — and the more aggressively you front-loaded it, the bigger the slice of your sale price that returns as ordinary-taxed income rather than discounted long-term gain. Colorado's role in this is simple and unavoidable: the whole gain, recapture included, is state income at 4.4%.

And whatever the exit looks like, remember the cash-flow side: a six-figure gain with no withholding usually means quarterly estimated payments — federal and Colorado both — due in the same quarter as the sale, not the following April.