How Does Step-Up in Basis Work in Colorado?

Inherited assets in Colorado take a basis reset to fair market value on the date of death, and the gain on a later sale faces ordinary income tax at the state's regular rates.

Your State

Fair Market Value at Death

What the person who died paid for it

Sale Price

Who owned it?

The person who died owned it aloneWith you, as spousesWith someone else

Your Filing Status

Your Other Taxable Income

Tax Year of the Sale

Calculate the step-up in basis

Enter the asset's value when the person died, what they paid for it and your own tax details to see the new basis, the federal and Colorado tax on a sale and what the step-up saves.

Examples:

General information about stepped-up basis and capital gains tax on inherited property, not tax or legal advice. Basis follows IRC § 1014. Consult a licensed tax professional for tax questions. Data verified Sep 15, 2026

When someone dies, the cost basis of the property they leave is reset to its fair market value on the date of death under IRC § 1014. A later sale is taxed on the gain above that stepped-up basis, not above what the original owner paid, so the appreciation of the owner's lifetime is never taxed. The rule is federal and applies in Colorado as in every state.

State capital gains tax is a separate layer from the federal tax. After the step-up, the gain on a later sale faces ordinary income tax at the state's regular rates. Colorado's top marginal income tax rate is 4.4%. The step-up still matters: it sets the gain on which both the federal and the state tax are figured.

For the capital gains tax, inheriting is usually better than receiving a lifetime gift. Inherited property takes a basis reset to fair market value at death under IRC § 1014; a gift carries the donor's original basis under IRC § 1015. Stock bought for $10,000 and worth $200,000 carries a $190,000 gain to the recipient of a gift and none to an heir. Property held in a revocable living trust still receives the step-up at the grantor's death.

No. Inherited property is treated as held long-term from the date of death under IRC § 1223(9), whatever the actual holding period, so a sale the day after the inheritance is taxed at the federal long-term rates of 0%, 15%, or 20% on any gain above the stepped-up basis, plus the Colorado layer. Short-term ordinary-income rates never apply.

The new basis is the fair market value on the date of death, and IRS Publication 551 sets the standard for each asset class: for a publicly traded security the average of the high and low prices that day, for real estate a qualified appraisal as of that date, for a privately held business interest an independent valuation (required where a federal estate tax return is filed). The valuation is what substantiates the basis on Schedule D when the heir sells.

Step-Up in Basis in Colorado

Under the federal step-up rule, the cost basis of inherited property is reset to fair market value on the date of death. Colorado residents inheriting appreciated stock, real estate, or business interests benefit from this the same way residents of every other state do — the rule is federal. State tax on any gain after the step-up is a separate, state-by-state question.

Colorado taxes long-term capital gains as ordinary income — there is no preferential capital gains rate. Any gain remaining after the step-up faces ordinary income tax at the state's regular rates. Colorado's top marginal income tax rate is 4.4%. The step-up is still valuable here: it reduces the gain on which both federal and state tax are calculated.

The step-up in basis is a federal benefit, but Colorado residents often combine it with state-specific planning to maximize the tax advantage. Holding appreciated assets in a Colorado revocable living trust preserves the step-up at death and keeps the assets out of probate, simplifying the transfer to heirs; a lifetime gift instead carries the donor's original basis.