Colorado
Reviewed July 2026Federal §453 conformity
Yes — and more directly than most states: Colorado starts from federal taxable income, so the installment method, and even the federal standard or itemized deduction, flow straight through to a flat 4.4%. The rate itself has a Colorado quirk: in years the state runs a TABOR surplus, the legislature can hand it back as a temporary rate cut, so a given payment year may be taxed slightly below 4.4%. Pleasant, but worth checking annually rather than assuming.
Nonresident sourcing
Gain from Colorado real estate or a business operating in Colorado is Colorado income for sellers anywhere, and the payments keep that character; intangible gain generally follows the seller's home state.
Withholding
Colorado withholds 2% of the sales price (capped at the net proceeds actually available at closing) when a nonresident sells Colorado real property. On an installment sale the net-proceeds cap does useful work — withholding cannot exceed the cash at the table — but the paperwork should still be set to the transaction before the deed records.
Selling, then moving (residency change)
Colorado-source gain stays taxable here after a move; other gain travels with the seller, and no rule accelerates deferred gain at the border. At a flat 4.4% the stakes are modest either direction, which is why Colorado appears in these plans more often as a destination than a departure.
Pass-through entity (PTE) tax election
Colorado's SALT Parity election runs at the same flat 4.4% with an owner credit, made annually on the entity's return — a forgiving calendar. Colorado also did something no other state matched: it allowed entities to reach back and elect retroactively for the earliest SALT-cap years, a reminder that this legislature has been consistently friendly to the workaround. The regime rides on the federal SALT cap's existence, so the far-out payment years carry the familiar keep-checking footnote.
Estate and IRD
Colorado has no estate or inheritance tax. At death the federal rules apply — heirs pay income tax as payments arrive — with no Colorado layer on the transfer.
Planning notes
Colorado's headline item is for farm sellers: the state's capital gain subtraction now belongs exclusively to farmers selling agricultural land — Schedule F filers, land classified as agricultural for property tax purposes — and for those who qualify it can take the Colorado tax on the land gain to zero. Everyone else gets the consolation that 4.4% flat is already among the gentler rates in the country. Beyond that: set the 2% withholding paperwork before closing for nonresident sellers, check the TABOR rate each payment year, and make the PTE election annually.
Since 2022, Colorado's capital gain subtraction applies solely to farmers (Schedule F filers) selling real property classified as agricultural land — stock, equipment, and ordinary real estate no longer qualify. For a qualifying farm sale it can eliminate the Colorado tax on the land gain; for everything else, plan on the flat 4.4%. Older summaries describing a general $100,000 subtraction are out of date.
Educational information, current as of the July 2026 review. State law changes; confirm treatment with a qualified advisor before structuring a transaction.
← Back to State Tax Center