Selling an Inherited House in Colorado: Taxes and Probate

Colorado has no inheritance tax and no state estate tax, and the federal stepped-up basis resets the tax cost of an inherited home to its value on the date of death. An heir who sells a Denver house within a year of a parent's passing owes little or no capital gains tax on it. What costs heirs money is delay: a house that sits through 18 months of probate, deferred maintenance and a second Colorado hail season loses more value than any tax strategy saves. This guide covers the three things that decide the outcome on a Front Range inherited home: the stepped-up basis, the Colorado probate path, and whether the estate or the heirs sign the deed.

Does Colorado tax an inheritance?

No. Colorado repealed its estate tax years ago and has never had an inheritance tax, so nothing is owed to the state for receiving the house. The federal estate tax reaches only estates above a per-person exemption in the millions of dollars, which almost no Colorado estate meets. The tax that matters is capital gains tax when the house is sold, and the stepped-up basis is what keeps it small.

What is the stepped-up basis?

Basis is the number the IRS subtracts from the sale price to find your gain. For a home you buy, basis is what you paid plus improvements. For a home you inherit, basis is the fair market value on the date of death, whatever the original owner paid. Inherited property is treated as held long term no matter how soon you sell, so any gain is taxed at the federal long-term rates of 0, 15 or 20 percent and by Colorado at the flat 4.4 percent income tax rate.

The $510,000 of appreciation during the parents' ownership is never taxed. Three details change the math:

• Jointly owned with a surviving spouse: Colorado is not a community property state, so only the deceased spouse's half steps up. The survivor's half keeps its original basis until the survivor's own death.
• Held in a living trust: the step-up applies the same way; the trustee sells and the trust or the beneficiaries report the gain.
• Given away before death: a home deeded to the children while the parent was alive carries the parent's original basis. That gift of a $640,000 house with a $130,000 basis creates a $510,000 taxable gain at sale. Do not add children to a Colorado deed to skip probate; use a beneficiary deed instead.

How do I document the date-of-death value?

Order a retrospective appraisal from a Colorado-licensed appraiser, valued as of the date of death, within the first few months. It costs $400 to $700 on the Front Range and it is the document the IRS accepts. A Zillow estimate is not. Keep it with the death certificate, the closing statement from the sale and receipts for every repair made after the death; those repairs add to basis and reduce the gain. The group provides a Smart Pricing Report alongside the appraisal so the estate knows both the tax value and the list price.

Do I need probate to sell an inherited house in Colorado?

It depends on how title was held on the day of death:

• Joint tenancy with right of survivorship: no probate. The survivor records a death certificate and a supplemental affidavit and owns the home.
• Beneficiary deed recorded before death: no probate. The named beneficiary records the death certificate and takes title. Colorado has allowed beneficiary deeds since 2004 and they are the cheapest probate-avoidance tool a Colorado homeowner has.
• Living trust: no probate. The successor trustee sells under the trust.
• Sole owner, with or without a will: probate. Colorado's small estate affidavit covers personal property only; real estate always goes through the court.

Informal or formal probate: which one, and how long?

Colorado follows the Uniform Probate Code, and most estates use the informal route. The case is opened in the district court of the county where the person lived (Denver Probate Court in the City and County of Denver).

• Informal probate: the court registrar appoints the personal representative and issues Letters without a hearing when the will is valid and uncontested, or when there is no will and the heirs agree. Filing to Letters takes two to four weeks. The estate stays open at least six months for the creditor claim period, and a simple estate closes in six to twelve months. Attorney fees on the Front Range run $2,500 to $6,000 flat for an uncontested informal estate; many heirs handle it with the court's forms and no attorney.
• Formal probate: a judge rules after a hearing. It is used when the will is contested or unclear, heirs cannot be found, or someone objects to the personal representative. Plan on twelve to twenty-four months and hourly attorney fees.

The personal representative under Colorado law has the power to sell the real estate once Letters are issued, without a separate court order, unless the will restricts it. The house does not wait for probate to close. Title companies on the Front Range close estate sales every week on three documents: the Letters, a certified death certificate and a personal representative's deed.

Should the estate sell the house or deed it to the heirs first?

Sell from the estate when there is more than one heir. The personal representative signs one listing agreement, one contract and one deed; proceeds go into the estate account; each heir receives cash and a share of any gain or loss on a Schedule K-1. Deeding the house to four siblings first means four sellers, four signatures on every document, four title searches and one holdout who stops the sale.

Deed it to a single heir first when that heir plans to live in it for two years or more; the primary residence exclusion then applies to their own future sale. When one heir wants the house and the others want cash, the buyout below is the path.

What if the house has a reverse mortgage?

A reverse mortgage becomes due when the last borrower dies. The servicer sends a due-and-payable notice, and the heirs have a set window, extended in steps up to a year while the home is listed, to sell, refinance or hand the home to the lender. On an FHA reverse mortgage the heirs pay the lesser of the loan balance or 95 percent of the appraised value, and any shortfall is covered by FHA insurance, not the heirs. Respond to the servicer in writing inside the first 30 days and list the home immediately; the clock does not pause for probate. Read Colorado agents for reverse mortgage and probate sales for the servicer timeline.

Should I fix up an inherited Colorado house before selling?

Do the work that costs less than it returns and nothing more. On a Front Range home that has been owned 30 years:

• Do: clear-out and cleaning ($1,500 to $4,000 with an estate sale or donation run first), one warm-white paint job ($4,000 to $8,000), carpet replacement in the main rooms, a working furnace with a service receipt, gutters and downspouts extended away from the foundation, and a radon test.
• Skip: the kitchen and bath remodel. Buyers of dated Littleton, Arvada, Lakewood and Aurora ranches price the remodel in and pay for a clean, honest house; a $60,000 kitchen does not return $60,000 in an estate sale.
• Disclose: Colorado's Seller's Property Disclosure lets an estate that never lived in the home mark items as unknown. Say what you know, including the roof age and any hail claim.

The preparing and adding value before selling guide ranks every item by return, and estate sales versus donation in Colorado covers the clear-out.

How does one heir buy out the others?

The heir who keeps the house pays the others their share of the appraised value, less the selling costs the estate avoids, with cash or a mortgage. The buyout is written as a purchase from the estate or a refinance after distribution, and the buying heir's basis in the purchased share is what they paid. Mike Oswald, VP of Mortgage Lending at Rate, NMLS 261003, Equal Housing Lender, structures heir buyouts and the loan on an inherited home. You are free to use any lender. Details are on the financing page.

What if the heir wants to move into the house or downsize into something smaller?

Many Front Range heirs sell their own larger home and move into the inherited ranch, or sell both and buy a patio home. The Denver metro downsizing guide covers ranch and patio homes and what the move costs, the Colorado 55+ communities by area page lists the age-restricted options, and homes for sale in Littleton is a starting search for the south metro. Confirm the tax treatment of your own sale with a Colorado CPA or estate attorney before closing; your numbers depend on how title was held and on the date-of-death appraisal.

Where to go next

• How the Kenna Real Estate Group helps sellers
• How to sell a house in Colorado
• The Colorado home seller's guide
• What to do with an inherited Denver house you do not want to keep
• Senior real estate help in Colorado: probate and trust sales
• Meet the Kenna Real Estate Group agents

Talk to the Kenna Real Estate Group

The Kenna Real Estate Group at Keller Williams DTC sells estate and trust homes across the Denver metro and the Front Range: we coordinate the date-of-death appraisal, work with the personal representative and the estate attorney, run the clear-out and prep, and close on the Letters and the personal representative's deed. Call or text 303-955-4220. A live person answers. Not a robot, not a phone tree. You can also search every home for sale in Colorado.