No. Colorado doesn’t impose a state estate tax or an inheritance tax. The federal estate tax can still apply, and inherited assets can create separate income tax obligations when you sell them or withdraw money.
A house, a retirement account, and a business interest can receive different tax treatment. If you’re reviewing your Colorado estate plan, check what the estate may owe at death and what your heirs may owe later.
Why Colorado does not currently collect a state estate tax
Colorado’s estate tax was tied to a federal credit called the state death tax credit. The credit let Colorado collect part of the amount that would otherwise go to the Internal Revenue Service (IRS).
As the Colorado Legislative Council Staff explains, Congress phased out the credit from 2002 through 2004. Colorado requires no state estate tax return for deaths after December 31, 2004.
Estate tax vs. inheritance tax in Colorado
The difference between estate tax and inheritance tax is who owes it. An estate tax applies to the estate and is generally paid by the executor. An inheritance tax applies to what a beneficiary receives.
Colorado replaced its inheritance tax with an estate tax in 1980.
Other states’ taxes can still affect a Colorado family. Check the rules where the person who died had their legal home and where they owned real estate or other tangible property. The state, type of asset, and family relationship can affect what’s owed.
When the federal estate tax can still apply
Federal estate tax can apply when taxable transfers at death and during life exceed the available exclusion. The executor may need to file a federal estate tax return even if the estate owes no tax.
Federal estate tax exemption
The basic federal estate and gift tax exclusion for U.S. citizens and residents is $15 million for deaths in 2026 and $15.48 million for deaths in 2027.
Prior taxable gifts can reduce the exclusion available at death. The exclusion applies to the person who died. Heirs don’t each receive a separate exclusion. Under the Form 706 instructions, the executor generally must file if the gross estate plus adjusted taxable gifts exceeds the filing threshold for the year of death. Deductions can reduce the tax bill even when a return is required.
Federal estate tax rates
Federal estate and gift tax rates range from 18% to 40%. Deductions, credits, and prior gifts affect the final bill, so multiplying the total estate value by 40% won’t tell you what the estate owes.
Portability for married couples
Portability lets an eligible surviving spouse use a deceased spouse’s unused exclusion. The executor makes this election on Form 706. The return is generally due nine months after death. The executor can request a six-month filing extension using Form 4768.
If the estate didn’t otherwise have to file and meets the IRS requirements, the executor may use the IRS simplified procedure for a late election by filing Form 706 on or before the fifth anniversary of the death. Portability can preserve the unused exclusion even when no estate tax is owed.
What happens when you inherit property in Colorado
Receiving inherited property generally doesn’t count as income. Tax can apply later if the property earns income, you sell it for a gain, or you take a taxable withdrawal from a retirement account.
Your tax basis helps determine your gain or loss when you sell. For inherited real estate, the starting basis is usually the fair market value at death. Ask the executor for any appraisal or valuation records before you sell.
Inherited retirement accounts have withdrawal rules that vary by account and beneficiary. Check those rules before you withdraw and keep relevant account statements and tax forms.
Separate rules apply to income the estate earns after death. A domestic estate generally must file Form 1041 if it has at least $600 in gross income during the tax year. Other filing requirements can apply below that amount.
When estate planning is worth a closer look
Even when no estate tax is owed, an estate plan names who can act for you, how property passes, and who manages it for your heirs.
You can name a guardian for your minor children and leave instructions for who will run your business if you die or become incapacitated. Leaving money outright to someone who receives needs-based benefits can affect their eligibility. A properly structured and managed special needs trust may help preserve those benefits.
Review your wills and trusts alongside your property titles and beneficiary designations. An account with a valid beneficiary designation generally passes to the person named on the account, even if your will names someone else.
Legal review is especially valuable with business ownership, property in multiple states, a blended family, or a beneficiary who needs ongoing support.
Plan your Colorado estate around current tax rules
Start with an inventory of what you own, where it’s held, and who’s listed as the beneficiary. Flag anything that has changed since you last reviewed your plan.
Birch Grove Legal helps Colorado families and business owners plan for estate transfers, taxes, and asset protection. Call (720) 713-7093 or book a free consultation to discuss how these rules affect your estate plan.
FAQs about Colorado estate and inheritance taxes
Does Colorado tax inherited property?
Colorado doesn’t impose an inheritance tax when you receive property. If you keep inherited real estate, ordinary property tax rules still apply. Rent, investment income, and gains from a later sale may also be taxable.
How much can you inherit in Colorado without paying tax?
Colorado sets no inheritance tax limit on what you can receive. The federal exclusion applies to the estate’s transfers, including applicable lifetime taxable gifts. The amount you receive by itself doesn’t determine federal estate tax.
Do you have to report an inheritance as income?
Generally, no. The IRS excludes inherited property from income, but taxable retirement account withdrawals and income passed through from an estate or trust may need to be reported. Check any Form 1099-R or Schedule K-1 you receive.
Does Colorado have a state gift tax?
No. Colorado has no state gift tax. The federal annual gift tax exclusion is $19,000 per recipient in 2026 and $20,000 in 2027 for gifts that qualify. A larger gift generally requires the giver to file Form 709, though filing doesn’t necessarily mean tax is owed.
Can federal estate tax apply if Colorado has no estate tax?
Yes. Federal estate tax rules apply even when Colorado collects no estate tax. The executor checks the estate’s value and prior taxable gifts to determine if a federal return is required. An estate may also file to pass unused exclusion to a surviving spouse, even if it owes no tax.
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