Colorado Estate Tax and Inheritance Tax: What Families Need to Know

If you're settling an estate in Colorado and dreading a surprise tax bill from the state, here is the short answer: Colorado has no estate tax and no inheritance tax. The state legislature repealed its estate tax years ago, and Colorado has never imposed a separate inheritance tax on beneficiaries. Whether you inherit $50,000 or $5 million from a Colorado resident, the state will not send you a tax bill simply for receiving those assets.

That said, "no state estate tax" is not the same as "no taxes." There are federal obligations, income tax rules, and a few Colorado-specific fiduciary filing requirements that catch executors and personal representatives off guard. This article explains exactly what you do and do not owe.

Colorado Has No Estate Tax — Period

Colorado eliminated its state-level estate tax in 2005 when the federal credit it was tied to expired. Since then, estates administered in Colorado pay no state death tax, regardless of size. A $10 million estate settled in Colorado owes nothing to the Colorado Department of Revenue solely on account of the decedent's death.

There is also no Colorado inheritance tax on beneficiaries. Some states — Kentucky, Iowa, Maryland, Nebraska, New Jersey, and Pennsylvania — impose a tax on what heirs receive. Colorado is not one of them. If you are a Colorado resident who inherited money from a relative who died in one of those states, however, you may owe that state's inheritance tax even as a Colorado resident. The decedent's state of residence controls.

The Federal Estate Tax Threshold in 2026

Federal estate tax is a separate matter, and in 2026 it applies to very few families. Following the enactment of the One Big Beautiful Bill, the federal basic exclusion amount rose to $15,000,000 per individual. A married couple can shield up to $30,000,000 in combined assets from federal estate tax by electing portability of the unused exclusion on a timely-filed estate tax return (IRS Form 706), even if no tax is owed.

What this means practically: the vast majority of Colorado estates — including estates that include real property, investment accounts, and retirement funds — will owe zero federal estate tax. If the gross estate exceeds $15,000,000, the executor must file Form 706 within nine months of the date of death (with a six-month extension available).

Even for estates well below the threshold, filing Form 706 within nine months may be worth doing to lock in portability of the unused exclusion for a surviving spouse. A CPA experienced in estate taxation can assess whether this election makes sense for your family's situation.

What Colorado Executors Do Owe: Fiduciary Income Tax

The absence of a state estate tax does not mean the estate has no Colorado tax obligations. Once a person dies, their estate becomes a separate taxable entity for income tax purposes. If the estate generates income after the date of death — rental payments from property, dividends from a brokerage account, interest on bank accounts — that income is taxable to the estate, not to the deceased.

The executor must:

1. Obtain an Employer Identification Number (EIN) from the IRS for the estate. This is free and takes minutes at irs.gov.
2. File a final federal Form 1040 for the year of death, covering income earned up to the date of death.
3. File IRS Form 1041 (U.S. Income Tax Return for Estates and Trusts) for any post-death income earned by the estate.
4. File Colorado Form DR 0105 (Colorado Fiduciary Income Tax Return) if the estate had Colorado-source income.

Many executors skip DR 0105 entirely because they assume "no estate tax" means no state filings. That assumption is wrong. Failing to file DR 0105 when the estate had post-death income triggers penalties and interest from the Colorado Department of Revenue. The form covers the estate's fiscal year, which the executor can choose — it does not need to match the calendar year.

The Step-Up in Basis: The Tax Benefit Families Miss

One of the most significant tax advantages available to Colorado heirs has nothing to do with estate tax. Under current federal law, inherited assets receive a stepped-up basis equal to their fair market value on the date of death. If your parent bought a stock for $10,000 in 1992 and it was worth $180,000 when they died, your cost basis for capital gains purposes is $180,000 — not $10,000. If you sell it immediately after inheriting it, you owe no capital gains tax on that appreciation.

This step-up applies to real estate, stocks, investment accounts, and most other capital assets. It does not apply to IRAs and retirement accounts, which carry their own distribution rules and income tax obligations.

The step-up in basis is not automatic — it requires the executor to document the fair market value of each asset as of the date of death. Appraisals for real estate, statements for brokerage accounts, and valuations for closely held businesses should all be gathered and retained before assets are distributed.

Colorado's Surviving Spouse Protections

Colorado provides meaningful financial protections for surviving spouses that exist independently of the tax rules. In 2026, these include:

• A $44,000 exempt property allowance: tangible personal property that passes directly to the surviving spouse or dependent children, shielded from creditor claims.
• A $44,000 family allowance: funds the surviving spouse can draw from the estate for living expenses during the administration period, with priority over nearly all creditors.
• A $73,000 elective share minimum: the guaranteed floor distribution for a surviving spouse if the will leaves them less.

These protections have nothing to do with taxes. They are statutory rights under C.R.S. § 15-11-403 and § 15-11-404 that the surviving spouse must actively claim.

What You Should Do Next

If you are settling a Colorado estate, start with this checklist:

1. Confirm whether the gross estate exceeds $15,000,000 to determine if federal Form 706 is required.
2. Obtain an EIN for the estate immediately if the estate will hold assets for more than a few weeks.
3. Identify any post-death income sources — rental properties, dividends, interest — and flag them for DR 0105 reporting.
4. Document the fair market value of all capital assets as of the date of death for step-up in basis purposes.
5. If the estate is large enough or complex enough to raise portability questions, consult a CPA before the nine-month federal filing deadline.

The Colorado Estate Settlement Guide at /us/colorado/estate-settlement/ walks through every phase of the administration process — from the first 48 hours through final distributions — including how to handle fiduciary income tax, creditor claims, and property transfers. It covers the exact forms, current thresholds, and county-level fee schedules that Colorado executors encounter in 2026.

The Bottom Line

Colorado does not tax what you inherit. But the estate itself may owe income taxes on post-death earnings, the executor has federal and state filing obligations, and high-value estates must still contend with federal estate tax above $15,000,000. Understanding the difference between estate tax, inheritance tax, and fiduciary income tax prevents costly mistakes during an already difficult time.

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