Updated October 7, 2026. Quick answer: Generally no, if you qualify for the federal exclusion. The Colorado booklet says “Colorado income tax is based on your federal taxable income”, which already leaves out a gain excluded under section 121. Gain above it is taxed at a flat rate: “The income tax rate is currently 4.4%”.
Colorado tax on home sale profit at a glance
| Item | What the documents say |
|---|---|
| Profit on your main home | Based on federal taxable income, which excludes a gain excluded under section 121 (the booklet does not mention section 121) |
| Rate on gain above the exclusion | Flat 4.4% |
| Collected at the sale | Nonresident sellers only: closing agent withholds the lesser of 2% of the sales price or net proceeds (DR 1083, DR 1079); not for a principal residence or a sales price of $100,000 or less. The deed carries a state documentary fee of one cent for each $100 of consideration |
| Source | Colorado Department of Revenue |
What the Colorado documents say
The 2025 Colorado individual income tax booklet says “Colorado income tax is based on your federal taxable income”. Under the federal statute, “Gross income shall not include gain from the sale or exchange” of a principal residence that meets the ownership and use tests, so an excluded gain never enters federal adjusted gross income. That is reasoning from two documents. The booklet prints no separate Colorado exclusion for a home sale.
On the rate, the booklet says “The income tax rate is currently 4.4%”.
What the federal exclusion requires
Most state answers start here. The statute says “Gross income shall not include gain from the sale or exchange” of property that, during the five years before the sale, you owned and used as your principal residence for periods adding up to two years or more. The limit is “shall not exceed $250,000”, or $500,000 for a husband and wife who make a joint return and meet the statute’s conditions. See CMG’s home sale taxes page and exclusion calculator.
A worked example at a $400,000 gain
An illustration, not a return: a married couple in Colorado sells their main home with a gain of $400,000 and meets the federal ownership and use tests. The gain is below the $500,000 joint exclusion, so it is not in federal adjusted gross income and, on the documents read, $0 is taxed by Colorado. As a second illustration, computed below, suppose the gain were $600,000. The amount above the exclusion would then be $100,000 and, computed as that excess times 4.4%, the tax at the flat rate would be $4,400, before any other adjustment.
What is collected at the sale
Form DR 1083 covers conveyances of Colorado real property. It sets withholding at “2% of the the sales price, as defined below” for a nonresident transferor, reduced to net proceeds where lower, and the Department’s instructions say withholding is not required when the sales price is $100,000 or less or when the “real property being conveyed is the principal residence of the transferor”. Resident sellers are not covered by the withholding.
Colorado also charges a documentary fee on the deed. C.R.S. 39-13-102 says it is paid by “every person offering for recording” a deed, and sets it “at the rate of one cent for each one hundred dollars, or major fraction thereof, of such consideration”.
What changes in 2026
The documents read for Colorado announce no change for 2026 that is specific to the tax on a home sale. The forms and instructions read are for tax year 2025 or the newest page archived; check the state agency for 2026 forms when they are published.
What the documents do not say
- The booklet does not mention section 121, so conformity is reasoned from the federal starting point. The Colorado statute was not archived. The booklet is for tax year 2025.
Common mistakes
- Treating the DR 1083 withholding as a rule for Colorado residents; the form covers nonresident transferors.
- Applying the flat rate to the whole gain; the rate applies to what remains after the federal exclusion.
- Assuming the answer for one state applies to another, or that the state answer changes the federal tax on the sale.
Related: home sale taxes, state tax on home sale profit, how Colorado taxes capital gains, Colorado retirement taxes, and home sale exclusion calculator.
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Answer againSources
- 2025 Colorado Individual Income Tax Booklet (DR 0104): https://tax.colorado.gov/sites/tax/files/documents/Book104_2025.pdf
- DR 1083, Information with Respect to a Conveyance of a Colorado Real Property Interest: https://tax.colorado.gov/sites/tax/files/documents/DR1083_2025.pdf
- 26 U.S.C. 121, Exclusion of gain from sale of principal residence (U.S. Code, GovInfo): https://www.govinfo.gov/content/pkg/USCODE-2023-title26/html/USCODE-2023-title26-subtitleA-chap1-subchapB-partIII-sec121.htm
- C.R.S. 39-13-102, Documentary fee imposed (Colorado Revised Statutes 2023, Office of Legislative Legal Services; read October 8, 2026): https://leg.colorado.gov/sites/default/files/images/olls/crs2023-title-39.pdf
Sources: the primary documents linked above, read on October 7, 2026. General information, not tax advice. Your own facts decide the outcome, and a tax professional or the state agency itself is the right place to confirm anything consequential.