StructuredSales.org
StructuredSales.org
Colorado taxes capital gain at the same flat 4.40% rate as other taxable income. One subtraction still matters to a specific kind of farmer. A Weld County mineral owner, a Denver landlord, or a Western Slope orchard bought after the acquisition window closed pays 4.4% on the gain Colorado can reach, plus federal tax. A structured installment sale under IRC §453 changes when that tax is recognized. It does not change the rate.
Brokers still describe the subtraction as a general property break. Since 2022 it is a farmland rule with an acquisition window that closed in June 2009, a Schedule F test, and a $100,000 annual cap. Ground bought in the 2010s does not qualify. The federal installment math still might.
Colorado taxable income starts at federal taxable income, then adds and subtracts. The Department of Revenue's FAQ says Proposition 121 set the rate at 4.40% beginning in tax year 2022. Form DR 1098, the 2026 withholding worksheet dated October 21, 2025, multiplies by 4.40%. The January 2026 guide shows 4.4% for 2022, 2023, and 2025, and a temporary 4.25% for 2024. Use 4.4% for 2026 gain, and the rate in force when a later installment payment is recognized. There is no long-term preference.
Colorado adds back the federal qualified business income deduction above statutory income thresholds, and state income tax taken as an itemized deduction. Those additions are not capital-gains rules, but they change taxable income in a sale year. Multiplying the gain by 4.4% is only the starting point.
Section 39-22-518(2)(b)(I)(B.7) applies to tax years beginning on or after January 1, 2022. The property must be Colorado real property classified agricultural immediately before the sale, acquired on or after May 9, 1994 and before June 4, 2009, and held at least five uninterrupted years. A package qualifies only if at least 75% is classified that way. The seller needs no overdue state tax, no default on an obligation to the state or a Colorado local government, and a federal Schedule F for the year the gain arises. The subtraction is the lesser of net capital gain, the qualifying gain, or $100,000, per owner on a pass-through. Recapture does not qualify. File Form DR 1316. Land bought on or after June 4, 2009 does not qualify.
The older, broader subtraction in subsection (B.5) applied before 2022 and is repealed effective December 31, 2030. The farmer rule in (B.7) does not carry that repeal sentence. Do not treat the farm subtraction as expired, and do not claim the old rule.
Next to Iowa's retired-farmer election, which can zero state tax on a qualifying sale, Colorado's $100,000 subtraction is $4,400 at 4.4%. Worth documenting. Not the strategy on a seven-figure gain. Federal brackets are.
Colorado conforms to the installment method by starting from federal taxable income, so Form 6252 gain is in the Colorado starting point that year. Rule 39-22-109 says deferred gain on Colorado real property remains Colorado-source when recognized, including installment sales. Interest on an installment of Colorado real or tangible property is Colorado-source too. A move after closing does not export the land gain. Nonresidents compute a tentative tax as residents and apply the Colorado ratio.
The $100,000 cap is "for any single income tax year," and Schedule F is required "for the tax year in which the net capital gains arise." Installment gain arises as it is recognized. The Department has not published a ruling that picks a side for every fact pattern.
One path: claim up to $100,000 in a Schedule F year, then retire. Later years with no Schedule F may be fully exposed to 4.4%. The other path: keep farming, still file Schedule F, and still meet every test. Each year's recognized qualifying gain might support its own subtraction of up to $100,000. Nine years could shelter $900,000 that a lump sum shelters only to $100,000, about $35,200 of Colorado tax. Confirm that before you sign. The example uses one subtraction.
Nonresident closings have a withholding overlay. The Department generally requires the closing agent to withhold the lesser of 2% of the price or net proceeds when a nonresident conveys Colorado real property above the filing threshold, commonly sales of $100,000 or more. Withholding is a prepayment. Ask how a price paid to an assignment company is reported. Federal deferral and Colorado withholding are not the same event.
Eastern plains families in Yuma, Kit Carson, and Prowers still hold ground bought in the late 1990s and early 2000s, some of it inside the May 1994–June 2009 window. Weld and Morgan dairies mix old parcels with later purchases; only the old parcels are candidates, and only with Schedule F. San Luis Valley and Western Slope ground raises the same date question, often plus a stepped-up basis. Allocate land and improvements the way the farmland guide describes. Recapture gets neither the subtraction nor installment treatment.
A Lakewood apartment or an Adams County warehouse is not agricultural land, so Colorado tax is 4.4% of the gain. Compare a 1031 exchange with an installment sale, or read selling rentals without another exchange. If a house was a residence, the federal exclusion is the one in home sales over $500,000. Colorado does not add a state version.
A Weld County mineral sale follows the mineral rights guide. The surface being a farm does not make the mineral interest agricultural real property for the subtraction. Utah, next door, taxes 2026 gain at 4.45% with no farm subtraction. A two-state ranch is two returns. Kansas, Nebraska, Oklahoma, and New Mexico have guides for the other borders.
A married couple files jointly with $80,000 of other income. Land bought in 2003, still classified agricultural, produces $900,000 of installment-eligible long-term gain. They file Schedule F in the sale year and claim one $100,000 subtraction, not again later. Recapture is left out. The installment case is $100,000 a year for nine years. Federal tax uses 2026 joint brackets in Revenue Procedure 2025-32, the $32,200 standard deduction, and 3.8% NIIT above $250,000 of modified adjusted gross income. Colorado tax is 4.4% after that single subtraction. Interest is omitted. Estimates only.
| Estimate | All in one year | Nine annual slices |
|---|---|---|
| Federal long-term gain tax | $144,040 | $66,015 |
| Federal 3.8% NIIT | $27,740 | $0 |
| Colorado tax | $35,200 | $35,200 |
| Combined | $206,980 | $101,215 |
About $106,000 of the difference is federal. The lump-sum year puts about $334,000 of gain in the 20% bracket and about $730,000 of modified adjusted gross income over the NIIT line. Each $100,000 slice leaves about $51,100 in the 0% federal band and the rest at 15%, with modified adjusted gross income of $180,000 under $250,000. Colorado is $35,200 either way: $800,000 at 4.4% after one subtraction. Later Schedule F subtractions are not in the table. The obligation is under the $5 million section 453A line.
Related-party sales — a niece buying the home place, a partnership of cousins — bring in section 453(e) and, if depreciable property is in the package, section 453(g). The federal method is explained in how installment sale income is taxed.
For tax years beginning on or after January 1, 2022, section 39-22-518 allows the subtraction only for a Schedule F filer with no overdue Colorado tax and no default to the state or a Colorado local government. The gain must be on Colorado real property classified agricultural immediately before the sale, bought on or after May 9, 1994 and before June 4, 2009, and held five uninterrupted years. The subtraction is the lesser of net capital gain, the qualifying gain, or $100,000 a year. Later purchases and depreciation recapture do not qualify. File Form DR 1316.
The cap is annual, and Schedule F is tested in the year the net capital gain arises. Installment gain arises when it is included in federal income. A farmer who still files Schedule F, and who still meets every other test, should ask whether that year's slice supports its own subtraction of up to $100,000. This page does not treat that as automatic. If you stop filing Schedule F, later years may lose the subtraction.
Yes for Colorado real property. Department rule 39-22-109 says gain from real property in Colorado is Colorado-source income, and that deferred recognition on an installment sale remains Colorado-source income when the gain is finally recognized. Interest on an installment sale of Colorado real or tangible property is also Colorado-source. Nonresidents compute tax as if they were residents and then multiply by the Colorado-income ratio. Moving to Arizona or Texas does not move the dirt.
The Department of Revenue's individual income tax FAQ states that the rate is 4.40% beginning in tax year 2022 after Proposition 121. The 2026 employer withholding worksheet, form DR 1098 revised October 21, 2025, multiplies by 4.40%. Tax year 2024 was a temporary 4.25% year, so use the rate for the year the gain is recognized, not the rate you remember from a prior closing. There is no separate long-term capital-gains rate.
When a nonresident sells Colorado real property, the closing agent generally withholds the lesser of 2% of the sales price or net proceeds, commonly on sales of $100,000 or more. Withholding is a payment toward the tax, not the tax itself. How a deferred schedule interacts with the amount withheld is a question for the title company and a Colorado adviser. Do not assume the federal installment method cancels the form.
Last reviewed: October 22, 2026. The example is an estimate under the assumptions in the paragraph above the table.
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