No Capital Gain Tax in Colorado

[Ashish Acharya]

Qualifying taxpayers can claim a subtraction on their Colorado income tax returns for certain qualifying capital gains included in their federal taxable income. The subtraction is allowed only for capital gains earned from qualifying property the taxpayer acquired on or after Mary 9, 1994, (but before June 4, 2009) and owned for at least five uninterrupted years prior to the date of the sale.

See details below: 

This publication is designed to provide general guidance regarding the criteria the taxpayer, the capital asset, and the capital gain must meet in order to qualify for the subtraction and is intended to supplement guidance provided in the Colorado Individual Income Tax Guide. Nothing in this publication modifies or is intended to modify the requirements of Colorado's statutes and regulations. Taxpayers are encouraged to consult their tax advisors for guidance regarding specific situations.

Qualified taxpayers

The Colorado capital gain subtraction is allowed to eligible individuals, estates, trusts, and corporations. In order to be eligible to claim the subtraction, the taxpayer must not, at the time of the claim, either

• → have any overdue state tax liabilities, including any uncollectible tax liabilities resulting from bankruptcy; or
• → be in default on any contractual obligations owed to the state or to any local government within Colorado.

A qualified taxpayer may claim the subtraction for qualifying capital gains the taxpayer recognizes from property the taxpayer owns either directly or through a pass-through entity, such as a partnership or S corporation, provided that all applicable requirements are met.

Qualifying capital gains

The subtraction is allowed only for capital gains that meet all applicable requirements. Taxpayers cannot claim a subtraction for any income that is treated as ordinary income on their federal income tax return, including any recapture of depreciation.

Capital gains must satisfy all of the following criteria to qualify for the subtraction:

• 1) the gain must be included in the qualified taxpayer's federal taxable income for the year of the subtraction;
• 2) the gain must be earned on either qualifying real property or qualifying tangible personal property, meeting the requirements described below;
• 3) the qualified taxpayer must have acquired the property on or after May 9, 1994;
• 4) the taxpayer must have owned the property for at least five uninterrupted years prior to the sale.

Qualifying real property

Capital gains from real property qualify for the subtraction only if both of the following conditions are met:

• → the real property is located in Colorado; and
• → the qualified taxpayer acquired the real property on or after May 9, 1994, but before June 4, 2009.

Real property located outside of Colorado and real property acquired on or after June 4, 2009 do not qualify for the subtraction