Colorado offers a Colorado military tax exemption package rather than a single break: active duty pay earned while stationed overseas can be subtracted from state income, retired service members can subtract part of their military pension, veterans rated 100 percent disabled get a property tax exemption on their home, accompanying spouses can keep paying tax to their home state, and nonresident service members stationed in Colorado can skip the state’s vehicle ownership tax. Dollar limits and eligibility differ for each, and the retirement subtraction caps are locked in through tax year 2028.
Active Duty Pay Earned Overseas
A Colorado resident on active duty who spends at least 305 days of the tax year stationed outside the 50-state boundary of the United States can file as a nonresident. Military pay earned during that overseas assignment is generally not subject to Colorado income tax, even though residency is preserved.1Colorado Department of Revenue. Active Servicemembers
The 305 days must fall inside a single tax year. There are no published waivers. If you returned stateside before hitting the threshold, this subtraction is off the table for that year.1Colorado Department of Revenue. Active Servicemembers
A separate subtraction exists if you reacquired Colorado residency during active duty by registering to vote in Colorado, buying property here, or taking similar steps on or after January 1, 2016. That one does not require the 305 days.1Colorado Department of Revenue. Active Servicemembers
Claim either benefit on Form DR 0104 with the DR 0104AD Subtractions from Income Schedule, and keep your overseas orders with your records.2Colorado Department of Revenue – Taxation. DR 0104AD – Subtractions from Income Schedule
Military Retirement Income Subtraction
Retired service members can subtract a portion of military retirement pay from Colorado taxable income. The cap depends on your age at the end of the tax year, and these amounts hold for tax years 2022 through 2028:3Colorado Department of Revenue – Taxation. Retired Servicemembers
- Under 55: up to $15,000
- Ages 55 through 64: up to $20,000
- Age 65 or older: up to $24,000
Only the portion of military retirement included in your federal taxable income counts, and you can’t subtract more than you actually received. Colorado does not offer a full exemption of military retirement during this period.3Colorado Department of Revenue – Taxation. Retired Servicemembers
Colorado’s general retirement income subtraction is available to all residents, but you cannot stack the military and general subtractions to exceed the maximum allowed for your age bracket. If you qualify for both, coordinate the figures. The subtraction goes on Form DR 0104AD.2Colorado Department of Revenue – Taxation. DR 0104AD – Subtractions from Income Schedule
Property Tax Exemption for 100% Disabled Veterans
Section 3.5 of Article X of the Colorado Constitution exempts 50 percent of the first $200,000 of actual value on a qualifying home. The exemption reduces the assessed value used to calculate your annual property tax bill.
You qualify if all three are true:
- You served on active duty in the U.S. armed forces, including Colorado National Guard members called to active federal service, and received an honorable discharge.
- The U.S. Department of Veterans Affairs has rated you 100 percent permanent and service-connected disabled, or has granted you individual unemployability status.
- You own and occupy the home as your primary residence on the assessment date.
Surviving spouses can continue the exemption if the veteran died in the line of duty or had already qualified, as long as the spouse keeps owning and occupying the home. Only one exemption applies per tax year, so if you also qualify for the senior homestead exemption, you’ll choose between them.
Apply through your local County Assessor; the state Division of Property Taxation verifies the disability rating. The standard deadline is July 1 of the tax year, though you should confirm with your assessor’s office. You’ll need your DD-214 and a VA award letter documenting the 100 percent permanent rating or individual unemployability status. Approved exemptions show up on the next tax bill, and you have to reapply if you move to a different home in Colorado.
Income Tax Relief for Military Spouses
Under the federal Military Spouses Residency Relief Act, a spouse who moved to Colorado solely to accompany a service member on orders can keep paying income tax to their original state of legal residence. Wages earned in Colorado are not subject to Colorado income tax when all of the following apply:
- You and the service member are legally married.
- You moved to Colorado from another state specifically to be with your spouse, who is stationed here on military orders.
- You are earning income in Colorado.
Give your Colorado employer an Affidavit of Exemption for the Nonresident Spouse of a Servicemember (Form DR 1059) to stop state tax withholding at the source. If tax was withheld before you filed the affidavit, claim a refund on your Colorado return. A DR 0004 Colorado Employee Withholding Certificate can help your employer set future withholding correctly.4Colorado Department of Revenue – Taxation. DR 0004 – Colorado Employee Withholding Certificate
One boundary worth knowing: the exemption covers wages for services you perform. Rental income from Colorado property and other Colorado-source unearned income may still be taxable here.
Vehicle Ownership Tax Exemption for Nonresident Military
Active duty service members who are legal residents of another state but stationed in Colorado can avoid Colorado’s specific ownership tax on their vehicles. This is separate from registration fees and can run several hundred dollars a year depending on the vehicle.
You submit an affidavit stating you are not a Colorado resident. A separate affidavit is required for each vehicle, each one is valid for 60 days from the date you sign it, and the exemption must be renewed annually. If someone else handles the paperwork, they need an original general power of attorney. Your orders showing a Colorado duty station are the key supporting document.
Documents You’ll Need
The DD-214 is the foundational document for almost every benefit, confirming service dates, branch, and discharge status. For the property tax exemption and any disability-based claim, add the VA award letter showing the 100 percent permanent rating or individual unemployability determination. For the overseas active duty subtraction, keep the orders documenting your assignment.
Income tax subtractions run through Form DR 0104 and the DR 0104AD Subtractions from Income Schedule, filed either through the Colorado Department of Revenue’s Revenue Online portal or by mail.2Colorado Department of Revenue – Taxation. DR 0104AD – Subtractions from Income Schedule The disabled veteran property tax exemption follows a separate track through the County Assessor, with a July 1 target deadline and a reapplication requirement any time you change homes.