Inheriting property can be both a financial blessing and a legal responsibility. Whether it’s a family home, investment real estate, or other valuable assets, it’s important to understand how taxes may apply — especially when you’re managing an estate or making decisions about selling or holding onto inherited property.

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For beneficiaries in Colorado, the good news is that the state does not impose an inheritance tax. However, that doesn’t mean inherited property is completely tax-free. There are several potential tax consequences you should be aware of, including capital gains taxes, estate taxes (at the federal level), and property taxes.

Does Colorado Have an Inheritance Tax?

No, Colorado does not have an inheritance tax. This means that if you inherit property — such as a home, land, or financial assets — you will not owe state inheritance tax simply because you received it. In fact, as of 2024, only six states in the U.S. impose inheritance taxes, and Colorado is not one of them.

However, the absence of a state inheritance tax doesn’t necessarily mean the transfer is free of tax implications. Other federal and local tax issues may still apply depending on the value of the estate and how you choose to handle the property.

Does Colorado Have a State Estate Tax?

No, Colorado also does not have a state estate tax. This means that the estate itself will not be taxed at the state level before distribution to heirs. However, the federal estate tax may come into play if the estate is particularly large.

Federal Estate Tax Threshold

As of 2024, the federal estate tax applies only to estates exceeding $13.61 million for individuals and $27.22 million for married couples. This threshold is adjusted annually for inflation. If the value of the decedent’s estate falls below that amount, no federal estate tax is due.

For most families, this means federal estate tax will not be a factor. However, if you’re inheriting property from a high-net-worth individual, consulting with an experienced estate planning or tax attorney is wise.

Will You Pay Capital Gains Tax on Inherited Property?

This is the area where most tax implications arise for Colorado heirs.

Step-Up in Basis Explained

When you inherit property, the IRS typically allows for a “step-up in basis.” This means that the property’s tax basis is adjusted to reflect its fair market value (FMV) on the date of the decedent’s death, not the original purchase price.

Example:
If your parent bought a home in Denver 30 years ago for $100,000, but the home was worth $600,000 when they passed away, your cost basis becomes $600,000 — not $100,000.

This adjustment helps reduce your capital gains liability if and when you sell the property.

What If You Sell the Property?

If you sell inherited property, you’ll owe capital gains tax on the difference between the sale price and your stepped-up basis.

Continuing the example:
If you inherit a property with a stepped-up basis of $600,000 and sell it for $625,000, your taxable gain would be $25,000. You may be subject to short-term or long-term capital gains tax depending on how soon you sell and your overall income level.

Capital gains tax rates vary but typically range from 0% to 20% at the federal level, with possible additional surtaxes depending on your income. Colorado also taxes capital gains as regular income at a flat rate of 4.4%.

What If You Keep the Property?

If you decide to hold onto the property — for personal use or as a rental — you won’t owe capital gains tax until you sell. However, you may be responsible for:

Ongoing property taxes
Maintenance and repair costs
Homeowners insurance
Income tax on rental earnings (if applicable)

It’s wise to consult with a tax professional to understand your tax obligations, especially if you’re generating income from the property.

Property Tax Implications in Colorado

When you inherit real estate in Colorado, you also take over responsibility for property taxes. The county assessor typically reassesses the property’s value periodically, which could lead to higher property taxes, especially if the home has significantly appreciated in value.

If you plan to use the property as your primary residence, you may qualify for exemptions or credits, such as the senior property tax exemption for homeowners aged 65 and older who meet certain criteria.

Do You Need to Report the Inheritance on Your Income Taxes?

Generally, inherited property is not considered taxable income. This means you do not report the value of the inherited asset itself — such as a house, car, or investment account — on your federal or Colorado income tax return.

However, income generated by inherited assets is taxable. For example:

If you inherit rental property and earn rental income, that income must be reported.
If you inherit a brokerage account and receive dividends or interest, those earnings are taxable.

Should You Accept or Disclaim an Inheritance?

In some cases, you may choose to disclaim an inheritance — meaning you legally decline to accept the asset. Reasons may include:

You don’t want the tax or maintenance burden of a property.
You want the property to pass to another family member or heir.

A disclaimer must be in writing, signed, and submitted within nine months of the decedent’s death. Be sure to consult an estate planning attorney to handle the disclaimer correctly under Colorado law.

Contact Lohf Shaiman Jacobs Law Firm for Legal Representation

Inheriting property involves more than just accepting ownership — it can have long-term financial, tax, and legal consequences. Whether you’re considering keeping the property, selling it, or transferring it to another heir, the right planning can help minimize taxes and avoid costly mistakes.

At Lohf, Shaiman, Jacobs Law Firm, our experienced Denver-based attorneys can guide you through the estate administration process, explain your tax obligations, and help you make informed decisions about inherited assets. Contact us today to schedule a consultation and protect your financial future.