Colorado is a tax-friendly state overall, especially if you own a home or you’re retired. A flat 4.40% income tax, property tax rates among the seven lowest in the country, generous subtractions for Social Security and pension income, and no estate or inheritance tax all tilt the picture in residents’ favor. The one soft spot is sales tax: the state rate is tiny, but local add-ons can push the total above 9% in parts of the metro areas.
How Colorado Taxes Your Income
Colorado uses a single flat rate rather than graduated brackets. Every dollar of taxable income is taxed at 4.40%, applied to your federal taxable income after state-level adjustments.1Justia. Colorado Code 39-22-104 – Income Tax Imposed on Individuals, Estates, and Trusts – Single Rate Voters cut the rate from 4.55% to 4.40% through Proposition 121 in 2022.
The rate can also dip temporarily when state revenue exceeds the limits set by the Taxpayer’s Bill of Rights. For tax year 2024 it dropped to 4.25% as a refund mechanism before returning to 4.40% for 2025. Whether it falls again for 2026 depends on whether the state hits its revenue targets.2Department of Revenue – Taxation. Taxpayer’s Bill of Rights (TABOR) Information
You file on Form DR 0104 by April 15, the same deadline as your federal return.3Department of Revenue – Taxation. DR 0104 – Individual Income Tax Return Compared with states that stack brackets up to 9% or more on higher incomes, a flat rate under 5% is a meaningful break, particularly for middle and upper-middle earners.
Property Taxes Are Among the Lowest in the Country
Property tax is where Colorado really earns the tax-friendly label. The effective residential rate sits around 0.50%, placing the state among the seven lowest nationally.
For 2026, the residential assessment rate is 6.8%, and the first $700,000 of a home’s actual value gets an additional 10% reduction before the assessment rate is applied.4Colorado Department of Local Affairs Division of Property Taxation. Residential Local Government Assessment Rate On a $500,000 home, the assessor first drops the value to $450,000, then multiplies by 6.8% for an assessed value of $30,600. That assessed value is then multiplied by your local mill levy, which combines the budgets of school districts, fire districts, library districts, and other local taxing bodies. One mill equals one dollar per $1,000 of assessed value.
Payment timing is flexible. You can pay in full by April 30, split the bill into two installments due at the end of February and on June 15, or starting with tax year 2025, use a four-installment schedule for most properties where you owe more than $25, with payments due at the end of February, April 30, July 15, and September 15.5Colorado General Assembly. HB25-1199 Property Tax Payment Schedule
Senior and Veteran Property Tax Breaks
Three programs can cut what you owe on a primary residence:
- Senior homestead exemption. If you’re at least 65 on January 1 of the application year and have owned and lived in the home for at least 10 consecutive years, 50% of the first $200,000 of actual value is exempt.6Colorado Department of Local Affairs Division of Property Taxation. Senior Property Tax Exemption
- Disabled veteran exemption. Veterans with a 100% permanent and total VA disability rating, or individual unemployability rated at least 70% but compensated at the 100% rate, get the same 50% exemption on the first $200,000. Gold Star spouses qualify as well.7Colorado Division of Veterans Affairs. Property Tax Exemption
- Property tax deferral. Residents 65 or older and active military members can defer their taxes through a state loan program. Deferred taxes accrue simple interest starting May 1, and the loan comes due when the property is sold or transferred. Combined liens and mortgages must stay under 75% of the property’s value, prior taxes must be current, and the home can’t carry a reverse mortgage. The application window runs January 1 through April 1.8Colorado State Treasury. Property Tax Deferral Program Overview
Retirement Income Gets Real Protection
Colorado’s subtraction for retirement income is one of the strongest reasons retirees land here. The benefit splits by age and by income type.
For pensions, IRAs, self-employed retirement accounts, and fully matured privately purchased annuities, you can subtract up to $20,000 per year from state taxable income if you’re between 55 and 64. At 65 and older, that cap rises to $24,000.9Legal Information Institute. Colorado Regulations 39-22-104(4)(f)1Justia. Colorado Code 39-22-104 – Income Tax Imposed on Individuals, Estates, and Trusts – Single Rate
Social Security does even better. At 65 or older, you can subtract the full amount of Social Security benefits included in your federal taxable income, with no dollar cap. Between 55 and 64, you can also subtract the full amount, but only if your adjusted gross income stays at or below $75,000 single or $95,000 joint. Above those thresholds, the Social Security subtraction is limited to $20,000.10Department of Revenue – Taxation. Income Tax Topics – Social Security, Pensions and Annuities
One catch worth knowing before you file: the Social Security subtraction you claim reduces the amount available for other pension and annuity income. If you’re 55 to 64 with a $20,000 cap and you use $15,000 of it on Social Security, only $5,000 is left for IRA or pension distributions. For filers 65 and older, the unlimited Social Security exclusion still cuts into the $24,000 pension subtraction, so the order in which you draw income can change your bill.10Department of Revenue – Taxation. Income Tax Topics – Social Security, Pensions and Annuities
Where Colorado Is Not So Friendly: Sales Tax
The state sales tax rate is 2.9%, the lowest non-zero rate of any state.11Department of Revenue – Taxation. Sales Tax Rate Changes The headline number is misleading, though, because counties, cities, and special districts add their own taxes. Combined rates above 8% are common in metro areas, and some locations clear 9%.
Part of the reason is Colorado’s “home rule” cities, which have constitutional authority to run their own sales tax systems independently of the state. Denver, Colorado Springs, and Aurora are all home rule cities, and rates and exemptions can differ noticeably from one city to the next. The same item can cost more in one jurisdiction than in the next town over.
A few exemptions help. Groceries bought for home consumption are exempt from the 2.9% state tax, though some local jurisdictions still tax them.11Department of Revenue – Taxation. Sales Tax Rate Changes Retail marijuana is exempt from the 2.9% state sales tax but carries a separate 15% state retail marijuana sales tax, plus any local marijuana taxes.12Department of Revenue – Taxation. Marijuana Sales Tax If you buy from out of state and bring the item into Colorado for use, you owe use tax at the same rate as sales tax, which most often shows up with online or out-of-state purchases.
No Estate or Inheritance Tax
Colorado does not impose a state estate tax or an inheritance tax. The old state tax was tied to the federal state death tax credit, and when federal changes between 2002 and 2004 eliminated that credit, Colorado’s tax effectively disappeared for anyone who died after December 31, 2004. The state hasn’t collected estate tax revenue since fiscal year 2013-14.13Colorado General Assembly. Estate Tax
No Colorado estate tax return is required unless the date of death was before January 1, 2005. If a federal estate tax return is required (currently only for estates above $13.99 million) a state return is technically required too, but no state tax is actually owed.14Justia. Colorado Code 39-23.5-107 – Tax Returns – Date to Be Filed – Extension Inheriting money or property in Colorado won’t trigger any state tax bill.
The TABOR Refund
Colorado’s Taxpayer’s Bill of Rights is a constitutional cap on how much revenue the state can keep each year. The cap grows with inflation and population, and any revenue above the cap must be refunded unless voters approve keeping it.15Colorado General Assembly. TABOR
Refunds reach residents through several channels: temporary income tax rate reductions, sales tax refund credits on the state return, and property tax reimbursements. For tax year 2025, eligible full-year residents receive a sales tax refund credit ranging from $19 to $118 depending on filing status and adjusted gross income.2Department of Revenue – Taxation. Taxpayer’s Bill of Rights (TABOR) Information The individual amounts are modest, but the structural effect matters: the state can’t grow its budget faster than inflation and population without asking voters, which keeps the overall tax load from drifting upward over time.