Colorado does not have an inheritance tax or estate tax

Colorado imposes no tax on money or property you receive from someone's will or estate. This applies whether you inherit from a relative, a friend, or anyone else. The state does not tax the act of inheriting.

The federal government does tax large estates, but that is separate from state inheritance tax. Colorado residents who inherit property worth millions may owe federal estate tax, but Colorado itself collects nothing on inheritance at any amount.

This is different from income tax. If you inherit cash and then earn interest on it, or if you inherit rental property and collect rent, you will owe Colorado income tax on those earnings. But the inheritance itself — the transfer of the asset — is not taxed by the state.

Key Takeaways

  • Colorado has no state inheritance tax, so you will not owe the state money based on what you inherit.
  • The federal government taxes estates over a certain value, but Colorado does not add a state layer on top of that.
  • Income you earn from inherited assets — such as interest, rent, or dividends — is subject to Colorado income tax.
  • If you inherit property in Colorado from someone who lived elsewhere, Colorado's lack of inheritance tax still applies to you.

How federal estate tax differs from state inheritance tax

The federal government taxes estates worth more than a set amount. That threshold changes yearly. In 2024, the federal exemption is $13.61 million per person. Estates larger than that amount owe federal tax on the excess, and the executor of the estate pays it before distributing money to heirs.

State inheritance tax is different. Some states tax the heirs directly based on what they receive and their relationship to the person who died. Colorado does not do this. Even if a Colorado resident's estate is large enough to owe federal tax, the heirs pay nothing to Colorado.

Nine states currently have inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania, and Tennessee. If you inherit from someone who lived in one of those states, you may owe that state's inheritance tax even if you live in Colorado. Colorado's lack of tax does not shield you from another state's rules.

What happens when you inherit property in Colorado

When you inherit real estate, vehicles, bank accounts, or other assets in Colorado, the transfer itself is not taxed. You receive the property free of any Colorado state tax on the transfer.

After you inherit, your tax obligations depend on what you do with the asset. If you inherit a house and sell it, you may owe capital gains tax on the profit — the difference between what it was worth when you inherited it and what you sold it for. If you inherit a rental property and collect rent, that rent income is subject to Colorado income tax. If you inherit a brokerage account and the stocks pay dividends, those dividends are taxable.

The key point: Colorado taxes the income or gains from inherited assets, but not the inheritance itself. This is true whether you inherit from a Colorado resident or from someone who lived out of state.

Inherited retirement accounts and tax-deferred assets

Inherited retirement accounts — such as IRAs or 401(k)s — have their own federal tax rules that override state law. When you inherit a traditional IRA or 401(k), you must withdraw the money over time, and those withdrawals are subject to federal income tax and Colorado income tax.

The timing and amount of required withdrawals depend on your relationship to the person who died and the type of account. A spouse who inherits an IRA can treat it as their own and delay withdrawals. Adult children and other beneficiaries typically must withdraw the entire balance within 10 years under current federal rules, though some accounts have different timelines.

Colorado does not impose a separate tax on inherited retirement accounts, but the withdrawals you take are taxed as income. If you are unsure how to handle an inherited IRA or 401(k), a tax professional or the account custodian can walk you through the withdrawal schedule and tax impact.

Inherited property and property tax reassessment

When you inherit real estate in Colorado, the county assessor may reassess the property's value for property tax purposes. This does not happen automatically in all cases. Some counties reassess when ownership changes; others do not. The reassessment, if it occurs, affects your future property tax bills, not a one-time inheritance tax.

Colorado law allows a property tax exemption for certain transfers between family members, but the rules are specific. If you inherit from a parent, grandparent, or spouse, you may may have access to for a reduced assessment. You must file a form with the county assessor to claim this exemption, usually within a set time after the transfer.

Contact your county assessor's office to learn whether your inherited property will be reassessed and whether you may have access to for any exemption. The assessor's office can tell you the exact process and timeline for your county.

Estate planning and Colorado residents

Because Colorado has no inheritance tax, estate planning in Colorado is simpler than in states that do tax inheritance. You do not need to structure an estate to minimize state-level inheritance tax. However, federal estate tax still matters if your estate is large.

Many Colorado residents use wills, trusts, and other tools to control how their assets pass to heirs and to minimize federal tax if their estate is large enough. A will or trust does not reduce taxes, but it does let you decide who gets what and can reduce delays and costs in probate court.

If you are planning your own estate or have inherited property and are unsure about your tax obligations, an attorney or tax professional familiar with Colorado law can advise you on the best approach for your situation.

Frequently Asked Questions

Do I owe Colorado tax on money I inherit from a relative?

No. Colorado does not tax inheritance at any amount. You owe nothing to Colorado based on receiving the money or property itself. If you later earn income from that inheritance — such as interest or rent — that income is taxable.

What if the person who died lived in another state?

Colorado's lack of inheritance tax applies to you regardless of where the person who died lived. However, if they lived in a state with inheritance tax, you may owe that state's tax on what you inherit. Nine states have inheritance tax; check the rules of the state where the person lived.

Will my property taxes go up when I inherit real estate?

Possibly. Some Colorado counties reassess property value when ownership changes. Whether this happens depends on your county and your relationship to the person who died. Family transfers may may have access to for a reduced assessment. Contact your county assessor to find out.

Do I have to pay federal estate tax on what I inherit?

Only if the total estate is worth more than the federal exemption, which is $13.61 million per person in 2024. The executor pays federal estate tax from the estate before distributing money to heirs. Most Colorado estates are not large enough to owe federal tax.

What about inherited IRAs or 401(k)s?

Colorado does not tax the inheritance itself, but withdrawals from inherited retirement accounts are subject to federal and Colorado income tax. The amount you must withdraw each year depends on your relationship to the person who died and the account type. Consult the account custodian or a tax professional for your specific withdrawal schedule.