Understanding Colorado Capital Gains Tax:
Rules & Exemptions

Reviewed by: Chad Seegers, CRPC®
August 12, 2025

Capital gains tax applies when you sell an investment or property for more than you paid for it. For Colorado residents, understanding how these gains are taxed is an important part of effective financial planning. Unlike the federal government, which offers preferential tax treatment for long-term gains, Colorado taxes all capital gains as ordinary income—regardless of how long you held the asset. This article breaks down the basics of capital gains tax, how it’s treated in Colorado, exemptions that may apply, strategies to reduce your tax burden, and when it makes sense to seek professional advice.

What Is Capital Gains Tax?

Short-Term vs. Long-Term Capital Gains

Capital gains are categorized by how long you hold the asset before selling:

Short-term capital gains apply to assets held for one year or less. These gains are taxed as ordinary income at your federal income tax rate.

Long-term capital gains apply to assets held for more than one year. These are taxed at preferential federal rates of 0%, 15%, or 20%, depending on your income level.

Federal Tax Structure for Capital Gains

Federal long-term capital gains tax rates are tied to your taxable income¹:

Filing Status	0% Rate	15% Rate	20% Rate
Single	Up to $47,025	$47,026–$518,900	Over $518,900
Married Filing Jointly	Up to $94,050	$94,051–$583,750	Over $583,750

In addition, high-income earners may owe a 3.8% Net Investment Income Tax (NIIT) on capital gains if their modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly)².

How Colorado Taxes Capital Gains

Capital Gains Taxed as Ordinary Income

Colorado does not provide preferential treatment for long-term capital gains. All capital gains—short or long term—are taxed at the flat Colorado income tax rate, which is currently 4.4% (as of tax year 2025)³.

Impact of Colorado’s Flat Rate on Investment Gains

Unlike federal tax rules, Colorado’s flat-rate system means the holding period of the asset doesn’t matter. Whether you sell an asset after one month or 10 years, the gain is included as ordinary income on your state tax return and taxed at the same rate.

Common Exemptions and Deductions in Colorado

Federal Primary Residence Exclusion

If you sell your primary residence, you may qualify for the federal exclusion of:

Up to $250,000 of gain (single filers)
Up to $500,000 (married filing jointly)

To qualify, you must have lived in and owned the home for at least two of the last five years before the sale. These excluded gains are not taxed federally or by Colorado.

Colorado-Specific Deductions (Expired Programs)

Colorado once allowed a $100,000 capital gain subtraction for certain assets held more than five years and acquired before 2009⁴. This benefit expired after tax year 2021 and is no longer available. Investors should not assume any state-level deductions apply today.

Tax Planning Strategies for Colorado Investors

Tax-Loss Harvesting

One of the most effective strategies for reducing capital gains tax is tax-loss harvesting:

Sell underperforming investments to realize a capital loss
Offset up to $3,000 of ordinary income with losses annually
Carry forward unused losses to future tax years

This tactic helps reduce both federal and Colorado taxable income.

Timing Asset Sales & Using Tax-Advantaged Accounts

Strategic timing and account selection can help:

Hold investments long-term to benefit from federal lower rates
Use tax-advantaged accounts like IRAs, 401(k)s, and HSAs to defer or eliminate taxes on investment gains
Be mindful of asset location to keep highly taxed investments in tax-deferred accounts

Filing and Reporting Capital Gains in Colorado

How Capital Gains Are Reported on State Returns

Capital gains are reported as part of federal adjusted gross income (AGI), which flows into your Colorado Form 104. There is no separate capital gains schedule—everything is treated as ordinary income.

Accurate recordkeeping is essential, especially for:

Cost basis
Purchase and sale dates
Documentation of reinvested dividends

Avoidable Reporting Errors

Common mistakes include:

Misclassifying gains as short- vs. long-term (federally relevant)
Incorrect cost basis (especially with inherited or gifted assets)
Omitting reinvested dividends, which can inflate taxable gains
Forgetting carryover losses from prior years

These errors can result in overpaid taxes or IRS/state scrutiny.

When to Consult a Tax Advisor

Complex Transactions That Require Expertise

Professional guidance is especially valuable if you’re navigating:

The sale of a business
A high-value real estate transaction
Inherited assets with stepped-up basis considerations
Managing multiple investment accounts and tax lots

Reduce Your Tax Exposure With Informed Capital Gains Planning

Colorado capital gains are taxed at a flat income tax rate, with no special treatment for long-term holdings. While federal exclusions, like the primary residence exclusion, still apply, Colorado-specific deductions have expired. That means smart planning—through tax-loss harvesting, proper timing, and leveraging tax-deferred accounts—is more important than ever. And when the situation becomes complex, a knowledgeable advisor can help you reduce your tax exposure and stay on track financially.

Reviewed by,

Chad Seegers, CRPC®

Chad began his career with Sagemark Consulting in 2005 and then became a Select member of Sagemark’s Private Wealth Services which operated as a national resource for financial planners focusing on Advanced Strategies in the High Net Worth marketplace. Chad then began his partnership with Insight Wealth Strategies in 2013 focused on retirement planning primarily with Oil and Gas employees and executives. His primary areas of expertise are retirement, estate, and investment strategies as he serves as Investment Strategist for the financial planning team.

Sources:

Insight Wealth Strategies, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Insight Wealth Strategies, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Insight Wealth Strategies, LLC unless a client service agreement is in place.

Insight Wealth Strategies, LLC (IWS) and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

Understanding Colorado Capital Gains Tax: Rules & Exemptions

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