Capital Gains Tax on an Inherited Property in Colorado
Selling a house you inherited usually triggers less tax than people assume — mostly thanks to one rule that resets the clock on appreciation.
The Short Version
Colorado has no state inheritance tax and no state estate tax — you don’t owe Colorado tax simply for inheriting a property. What can create a tax bill is selling it later for a gain, and even then, a rule called “stepped-up basis” usually keeps that gain smaller than people expect. Sell relatively quickly after inheriting, and the tax owed is often minimal.
How it actually works
- The stepped-up basis, explained – When you inherit a property, its “cost basis” for tax purposes resets to the fair market value on the date the previous owner died — not what they originally paid for it decades ago. This matters enormously: if a house was bought for $150,000 in the 1990s and is worth $500,000 when inherited, none of that $350,000 in appreciation is ever taxed to you. Your basis simply starts at $500,000.
- You’re only taxed on appreciation after that date – Once you own the property, capital gains tax applies only to further appreciation from the date of death forward. If you sell soon after inheriting, at or near that stepped-up value, you may owe little to nothing. The longer you hold it and the more it appreciates, the larger a future gain could be.
- What Colorado actually taxes – Colorado doesn’t have a separate state capital gains tax — any taxable gain simply flows through as ordinary state income, taxed at Colorado’s flat rate (4.40% as of 2026). Federal long-term capital gains rates (0%, 15%, or 20%, depending on your income) apply on top of that.
- Document the value at date of death – Because the stepped-up basis is based on fair market value at death, it’s worth getting a professional appraisal (or at least solid comparable sales data) from around that date — this is what protects you if the IRS ever questions your numbers, and it’s much harder to reconstruct accurately years later.
A note on this information
This is general information about how capital gains tax typically applies to inherited property — not tax advice for your specific situation. Rates, exemptions, and rules can change, and your circumstances (multiple heirs, prior gifting, business use of the property) can affect the numbers. A CPA or tax attorney can calculate your actual exposure.
Inherited a property and thinking about selling?
We can help you understand the timeline and the numbers, not just the paperwork.
See also: Inherited a Property — how Chinook Home can help.