A Guide to Colorado Inheritance Tax Laws

Summary: This blog explains how inheritance tax works in Colorado and what financial factors may still apply even though the state doesn’t impose one. It also outlines key federal estate tax rules, out-of-state risks, and how to plan ahead for a tax-smart inheritance.

Main Points:

• Colorado does not have a state inheritance tax.
• Federal estate taxes will apply to estates of 13.99M in 2025.
• Assets inherited in Colorado may be taxed later if they generate income or are sold.
• Small estates under $82,000 (without real property) can bypass probate.
• Out-of-state inheritance may trigger other state’s tax laws.

Does Colorado take a portion of your inheritance? It’s one of the frequently raised and misunderstood questions among Colorado residents planning for their future. While inheritance tax in Colorado doesn’t exist, there are still several important legal and financial implications when receiving or leaving assets. This guide walks you through what you need to know about Colorado inheritance tax laws, how federal estate taxes could still apply, and steps to protect your legacy.

Does Colorado Have an Inheritance Tax?

No. Colorado does not have an inheritance tax. That means if you receive money, property, or investments from someone who has passed away while residing in Colorado, you won’t owe the state any tax just for inheriting those assets.

But there’s a key distinction: inheritance tax is a tax paid by the beneficiary, while estate tax is paid by the estate itself before assets are distributed. And while Colorado doesn’t impose either, federal estate tax may still come into play.

Also, if a Colorado resident inherits from someone who lived in a state that does levy an inheritance tax, like Pennsylvania, Maryland, or Nebraska, the beneficiary may be subject to that other state’s laws.

What Colorado Inheritance Tax Laws Really Mean for You?

As we’ve stated, there’s no Colorado inheritance tax, it’s still important for you to understand how the state treats inherited assets. As of 2025:

• If the total estate value is $82,000 or less and does not include property, heirs may use a small estate affidavit to bypass formal probate.
• If the estate includes real estate or exceeds $82,000 in value, it typically requires formal probate, unless assets were held in trust or passed by beneficiary designation.

How Assets Are Treated in Colorado

• Cash and property received through inheritance are not subject to state income tax.
• However, income earned from inherited assets—like interest, dividends, or rental income is taxable under Colorado’s flat income tax rate.
• Inherited property typically receives a step-up in basis to its fair market value at the date of death. This often reduces capital gains taxes if you decide to sell shortly after inheriting.

How Much Can You Inherit Without Paying Taxes in Colorado?

You won’t owe Colorado inheritance tax, no matter how much you receive. But the federal government does impose estate taxes on large estates. For 2025:

• The federal estate tax exemption is $13.99 million per individual.
• For married couples, that can be up to $27.98 million, if portability is elected.

Any amount above these thresholds may be taxed at progressive federal estate tax rates ranging from 18% to 40%.

What’s Changing in 2026?

The higher exemption amounts are part of the Tax Cuts and Jobs Act (TCJA) and are scheduled to expire on January 1^st, 2026. If Congress doesn’t act, the exemption will revert to around $7 million per person, adjusted for inflation, potentially exposing more families to estate tax than in recent years.

Colorado Inheritance Tax Rates: What You Need to Know

Because Colorado has no inheritance tax, its “rate” is effectively 0%. But learning how rates work in other states can be extremely useful, especially if you inherit assets across state lines.

For example:

• Pennsylvania taxes inheritances at 4.5% for children, 12% for siblings, and 15% for others.
• Maryland taxes non-lineal heirs at 10%.
• Federal estate tax rates, meanwhile, begin at 18% and cap at 40%, but only for amounts exceeding the exemption.

If you inherit from someone who lived in those states, or if the inherited property is located there, you could be subject to those states’ inheritance tax rates.

Planning Ahead: What to Do If You’re Receiving or Leaving an Inheritance

At Dechtman Wealth Management, we help guide clients through the complexities of wealth transfer, making sure you’re equipped to manage both the opportunity and the responsibility that come with inheritance.

If You’re Inheriting:

• Identify the types of assets (e.g., cash, home, IRA, brokerage account).
• Understand when income taxes apply, particularly critical on inherited retirement accounts.
• Know the rules for inherited IRAs under the SECURE Act:
  • Most non-spouse beneficiaries must deplete inherited IRAs within 10 years.
  • If the original owner has begun required minimum distributions (RMDs), annual withdrawals may be required during that 10-year window, per 2025 IRS guidance.

If You’re Leaving an Inheritance:

• Consider setting up trusts to avoid probate and preserve privacy.
• Review asset titling (e.g., joint ownership, TOD/POD accounts.)
• Use gifting strategies to gradually transfer wealth.
• Coordinate with a retirement tax planning advisor to minimize tax burdens on your heirs.

Planning early helps you set a foundation to afford and maintain your lifestyle, while protecting what you leave behind.

Dechtman Wealth’s FAQs:

Does Colorado have an inheritance or estate tax?

No. Colorado imposes neither a state inheritance tax nor an estate tax.

What should I do if I inherit an IRA?

You’ll need to follow IRS guidelines based on your relationship to the deceased. Most non-spouse heirs must follow the 10-year rule. Spouses may have more flexible options. Talk with a tax advisor to lower the risk of costly mistakes.

Do I owe state income tax on inherited property?

Not on the inheritance itself. But if the property earns income (e.g., rents or dividends), you may owe taxes on that income.

How do probate rules affect inheritance in Colorado?

If an estate is valued under $82,000 in 2025 and has no real estate, heirs may use a small estate affidavit. Larger or more complex estates typically go through formal probate unless a trust or other mechanism is in place.

What happens if the person I inherited from lived in a state with an inheritance tax?

You may be subject to that state’s laws. States like Pennsylvania and Maryland impose inheritance taxes even on out-of-state heirs. Each state’s rules vary; check with a professional.

Planning with Purpose—And People in Mind

Even though Colorado doesn’t impose an inheritance tax, that’s just one piece of a much bigger picture. Federal estate taxes, capital gains, and income from inherited assets can all affect what you leave—and what your loved ones receive.

By planning ahead, you’re not only managing taxes, but you can also protect the people and values that matter most to you.

If you’re attempting to understand an inheritance or preparing to leave one, now is the time to create a plan built around your life, legacy, and financial goals.

Talk with an advisor at Dechtman Wealth Management to start building a strategy that supports your future, and theirs.