Taxes on Selling a House in Colorado

Capital gains tax

You’ve likely heard the term “capital gains tax,” but what is it?

When you sell your home for more than its adjusted cost basis, the difference is called a capital gain. To compute your gain, add your original purchase price to the cost of qualifying capital improvements, then subtract your adjusted cost basis and eligible selling expenses from the sale price. The remaining amount is your capital gain, though whether you owe taxes on it depends on your situation.

For example, say you bought your Colorado home for $345,000 a few years ago, spent $35,000 on qualifying improvements over the years, and sold it today for $545,000. If you paid $30,000 in eligible selling expenses, your adjusted cost basis would be $380,000 (345,000 + $35,000), and your proceeds after selling expenses would be $515,000 (545,000 − $30,000).

Subtracting your adjusted cost basis of $380,000 from your net proceeds of $515,000 leaves you with a capital gain of $135,000. However, you may qualify for a capital gains exclusion or other tax adjustments that reduce the amount subject to tax, depending on your circumstances.

State capital gains tax

In Colorado, the profits from selling a home may be subject to state income tax. The state adds those taxable capital gains to your income and taxes them at its flat state income tax rate. For tax year 2025, that rate is 4.4%.

However, if you qualify for the federal home-sale capital gains exclusion, the portion of your profit that is excluded generally won’t be subject to Colorado income tax. Your final tax liability depends on your eligibility for exclusions and other applicable adjustments.

Federal capital gains tax

At the federal level, capital gains are classified as either short-term or long-term:

• Short-term capital gains apply when you sell an asset you’ve owned for one year or less. These gains are generally taxed at the same rates as your regular income, based on your tax bracket.
• Long-term capital gains apply when you sell an asset you’ve owned for more than one year. These gains generally qualify for lower federal tax rates, depending on your taxable income and filing status.

2026 short-term capital gains tax brackets

2026 long-term capital gains tax brackets

As mentioned, it’s possible to have your capital gains excluded at the federal level, assuming you qualify. The maximum amount of capital gain that can be excluded is $250,000 for single filers, and $500,000 for a married couple that is filing jointly.

If you don’t qualify for the full home sale tax exclusion, you may still be eligible for a partial exclusion. The IRS allows this in certain situations, such as moving for a job, selling for health reasons, or dealing with an unexpected event, like the death of a homeowner.

How to report your Colorado capital gains taxes

• For your federal return, report your capital gains and losses by using the U.S. Individual Income Tax Return (IRS Form 1040) and Capital Gains and Losses, Schedule D (IRS Form 1040).
• For your Colorado capital gains, use Individual Income Tax Return Form DR 0104.

Transfer tax (documentary fee)

A real estate transfer tax is a fee charged when ownership of a property changes hands, usually calculated as a percentage of the sale price or property value. The amount varies by location, and the buyer or seller may be responsible for paying it, depending on local rules.

In Colorado, the state does not impose a real estate transfer tax but charges a documentary fee, which is 1 cent for every $100 of consideration, or major fraction thereof, when the total consideration exceeds $500. Some Colorado cities, including certain mountain resort communities, impose their own local real estate transfer taxes, but there is no general county-level transfer tax statewide.

Who pays the local transfer tax depends on local rules and what the buyer and seller agree to in the contract. In Colorado, the standard purchase contract lets both parties specify who will cover the tax at closing. The documentary fee is collected by the county clerk and recorder when the deed is recorded, so it’s usually paid during closing as part of the recording process.

Property tax

Property tax is a yearly tax homeowners pay to help fund public services such as schools, roads, and emergency services. The amount is based on the value of the property and the tax rates set by local governments.

In Colorado, the effective tax rate for owner-occupied homes is about 0.50% of the home’s value. The exact amount depends on where the home is located because counties, cities, school districts, and other local districts can collect property taxes. Colorado property taxes are usually paid the year after they’re charged, with the full payment due by April 30 or two payments due by the end of February and June.

Colorado property taxes are generally paid in arrears, meaning payments made during a year cover the previous year’s taxes. When a home is sold, property taxes are typically prorated between the buyer and seller at closing based on the terms of their agreement.

Find more tax resources specific to your city or town in the Colorado’s Department of Local Affairs, Division of Property Taxation.

Inheritance tax

Colorado does not currently impose a state inheritance tax, and its estate tax effectively ended for people who died after December 31, 2004. Still, if you inherit a home in Denver, Colorado Springs, or another part of the state, check whether the property has an outstanding mortgage, unpaid property taxes, or existing liens before listing it for sale.

When you sell an inherited home, you may benefit from a tax rule called a stepped-up basis. This generally sets your starting tax basis at the property’s fair market value when the previous owner died, rather than the amount they originally paid for it.

Your capital gain is generally calculated by subtracting your adjusted tax basis and eligible selling expenses from the sale price. If you sell the property soon after inheriting it and its value has changed very little since the previous owner’s death, you may have little taxable gain, although the final amount depends on the sale price, expenses, and any applicable tax adjustments.

Other selling expenses you might encounter in Colorado

Title fees: These usually cover a title search and title insurance. Title insurance helps protect the buyer and lender from title issues, such as forged documents, an undiscovered will, or deed restrictions that could affect ownership. 

In Colorado, the seller customarily pays for the owner’s title insurance policy, while the buyer typically pays for the lender’s title insurance policy if they’re financing the purchase. However, these are customary practices, not legal requirements, and the parties can negotiate a different arrangement.

Settlement fees: These fees are often around 1% of the home’s sale price. They’re charged by the title company, escrow company, or attorney handling the closing. Sometimes called escrow fees, they cover the final paperwork and the handling of payments during closing. Who pays these fees can vary, and in some cases, the buyer and seller split the cost. 

Agent commissions: Real estate agent commissions used to total around 5% to 6% of a home’s sale price, typically split between the buyer’s and seller’s agents. After the National Association of Realtors settlement, buyers now negotiate their agent’s fees directly. As a seller, you’ll pay your listing agent the agreed-upon rate, often around 2.5% to 3% of the sale price. You can also offer to cover some or all of the buyer’s agent’s compensation, but that’s optional and negotiable.

»Learn more: Want to know exactly how much you’ll walk away with from your home sale? Use our Colorado Closing Cost Calculator to get a personalized estimate of your selling expenses and see your potential proceeds after closing.

How to prepare for Colorado real estate taxes

Real estate taxes don’t need to be intimidating, and they don’t need to catch you off guard. There are a number of ways you can get an idea of what you’ll owe before the time comes to sell your home, and HomeLight is here to help. Here are some final steps to consider:

• Know your home’s value: Use an online Automated Valuation Model (AVM) tool like HomeLight’s free Home Value Estimator. Having a ballpark idea of what your home might be worth can help you calculate the potential capital gains from the home sale.
• Save the right documents: Know what tax documents you will need if you purchase or sell a home before doing so. Consult with your tax professional about the federal and state documents needed in Colorado and the tax breaks you might qualify for.
• Find a top agent: An experienced real estate agent can guide you through the home sale process and help you understand your tax burden and maximize your profits. Our data shows that the top 5% of real estate agents across the U.S. sell homes for 10% more than the average real estate agent.

HomeLight makes it easy to find top real estate agents in your market. From our Agent Match to innovative programs like Simple Sale and Buy Before You Sell, we have you covered when it comes to selling your home, ensuring every transaction is simple, certain, and satisfying.

Editor’s note: This post is for educational purposes only and shouldn’t be construed as financial or tax advice. If you need assistance navigating taxes, reach out to an advisor.

Writer Joseph Gordon contributed to the original version of this post.

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