Capital Gains Tax on Property Sale in Colorado Now

Understanding Capital Gains Tax on an Investment Property Sale: Colorado Investor’s Guide

Denver – October 2, 2025: When selling an investment property, whether it’s a duplex in Denver (80202), a vacation rental in Colorado Springs (80903), or a multifamily unit in Fort Collins (80521), one of the most important financial considerations is capital gains tax.

Real estate investing in Colorado can generate strong returns thanks to population growth, a thriving economy, and increasing rental demand. However, failing to understand how capital gains tax on an investment property sale works can cost investors tens of thousands of dollars in avoidable taxes.

This guide breaks down what capital gains tax is, how it applies in Colorado, strategies for minimizing it, and how GHC Funding can help investors structure financing to maximize after-tax returns.

Colorado Investor’s Guide

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What is Capital Gains Tax on an Investment Property?

Capital gains tax applies when you sell an investment property for more than you originally paid (plus improvements). The IRS distinguishes between:

• Short-Term Capital Gains: Properties held less than one year; taxed at ordinary income rates (10%–37%).
• Long-Term Capital Gains: Properties held more than one year; taxed at 0%, 15%, or 20% depending on income bracket.

Colorado investors also face a state income tax of 4.4% on capital gains.

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How Capital Gains are Calculated

1. Determine Adjusted Basis: Purchase price + improvements – depreciation taken.
2. Calculate Net Sales Price: Sale price – selling expenses (commissions, fees).
3. Subtract Adjusted Basis from Net Sales Price: The result is your taxable gain.

Example:

• Purchase price: $400,000
• Improvements: $50,000
• Depreciation taken: $30,000
• Adjusted basis = $420,000
• Sale price: $600,000
• Selling costs: $30,000
• Net sales price = $570,000
• Capital gain = $570,000 – $420,000 = $150,000 (taxable gain)

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Strategies to Reduce or Defer Capital Gains Taxes

1. 1031 Exchange

A 1031 exchange allows investors to defer capital gains taxes by reinvesting in another like-kind property. For example, trading a Denver single-family rental for a multifamily property in Boulder keeps profits working without triggering immediate tax liability.

2. Opportunity Zones

Colorado has several federally designated Opportunity Zones, particularly in Denver and Pueblo. Investing in these areas can defer and potentially reduce capital gains taxes.

3. Depreciation Recapture Management

When selling, the IRS requires you to “recapture” depreciation, taxed up to 25%. Proper planning, including cost segregation studies, can help manage this impact.

4. Long-Term Ownership

Holding property for over a year ensures long-term capital gains tax treatment, typically at lower rates than short-term.

5. Smart Financing with GHC Funding

Strategic refinancing with DSCR loans, SBA 7a/504, or bridge loans from GHC Funding can allow investors to extract equity tax-free while continuing to hold properties, delaying taxable events.

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Current Market Insights for Colorado Investors

Interest Rates (as of October 2025):

• DSCR Loans: 7.25% – 8.75%
• SBA 7a Loans: Prime + 2.75% (~11.25%)
• SBA 504 Loans: 6.75% – 7.5% fixed
• Bridge Loans: 9% – 11.5%

Loan Requirements:

• DSCR Ratio: 1.0–1.25 minimum
• LTVs: Up to 80%
• Eligible Properties: SFRs, duplexes, triplexes, multifamily, mixed-use
• Entity Ownership: LLCs and corporations accepted

By leveraging GHC Funding, Colorado investors can maximize liquidity without prematurely triggering capital gains taxes.

Get a DSCR Loan Calculator NOW!

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Geo-Targeting: Colorado Investment Opportunities

• Denver (80202, 80205): High appreciation makes capital gains planning crucial.
• Colorado Springs (80903, 80918): Strong military-driven rental market.
• Boulder (80301, 80302): High-value properties = significant capital gains exposure.
• Fort Collins (80521): College-town rentals create depreciation and appreciation advantages.
• Pueblo (81003): Opportunity Zone investment potential for capital gains deferral.

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External Resources for Colorado Investors

• Colorado Real Estate Commission – Licensing and compliance
• Colorado Department of Revenue – State tax regulations
• Colorado Association of Realtors – Market insights and advocacy
• Denver Metro Association of Realtors – Regional market data
• Colorado Housing and Finance Authority (CHFA) – Housing programs and resources

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Q&A: Understanding Capital Gains Tax on an Investment Property Sale

Q1: Do I pay capital gains tax if I reinvest in another property?
A: Not if you use a 1031 exchange, which allows you to defer taxes.

Q2: How much is capital gains tax in Colorado?
A: Federal rates range from 0–20%, plus Colorado’s 4.4% state tax.

Q3: Can I avoid depreciation recapture?
A: You cannot avoid it, but strategies like 1031 exchanges can defer it.

Q4: Do LLCs help reduce capital gains taxes?
A: LLCs provide liability protection but don’t change capital gains tax rules.

Q5: Can refinancing trigger capital gains?
A: No, refinancing with lenders like GHC Funding allows you to pull equity tax-free.

Q6: What if I lived in the property before renting it?
A: You may qualify for the primary residence exclusion ($250K single / $500K married) if you lived there 2 of the last 5 years.

Q7: Are Opportunity Zones worth considering?
A: Yes, they provide significant capital gains tax advantages, particularly in designated Colorado areas.

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Why GHC Funding is the Go-To Lender for Colorado Investors

• Entity-Friendly Financing: DSCR, SBA, and bridge loans allow LLC and corporate ownership.
• No Income Verification: DSCR approvals are based on rental cash flow, not W-2s.
• Flexible Options: Financing up to 80% LTV with competitive terms.
• Colorado Expertise: Tailored solutions for Denver, Boulder, and other key markets.

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Final Thoughts

Understanding capital gains tax on an investment property sale is essential for Colorado investors. With the right planning, including 1031 exchanges, Opportunity Zone investments, and tax-efficient refinancing, investors can preserve wealth and reinvest profits.

By partnering with GHC Funding, you’ll gain access to financing that not only scales your portfolio but also aligns with your tax strategies.

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Call to Action

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Visit GHC Funding or call 833-572-4327 today to explore DSCR loans, SBA financing, bridge loans, and alternative real estate funding solutions.

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Capital Gains Tax Minimization Checklist (PDF) for Colorado investors Download