1031 Exchange & DST Investing in Colorado
Colorado conforms to Section 1031 and taxes gains at a flat 4.4%, with a 2% nonresident seller withholding that is generally waived in a qualifying exchange and no clawback. Denver and the Front Range remain strong multifamily and industrial markets that attract replacement capital.
State tax treatment of a 1031 exchange
Colorado conforms to Section 1031, so gain deferred federally is also deferred for Colorado income tax. Colorado applies a flat 4.4% individual income tax rate to capital gains recognized as ordinary income. Nonresident sellers of Colorado real estate are generally subject to a 2% withholding of the sales price, which can be reduced or eliminated when the disposition is part of a like-kind exchange.
Colorado does not impose a clawback or continued-reporting requirement for gain deferred into replacement property located outside the state.
Market snapshot
Denver anchors Colorado's investment market, with Colorado Springs, Boulder, and Fort Collins forming an active Front Range corridor. Multifamily and industrial and logistics space lead demand, supported by office, life-science, and net-lease activity tied to the region's technology, aerospace, and healthcare employers.
Steady in-migration, a highly educated workforce, and diversified job growth have kept the Front Range a durable target for institutional and 1031 capital, though pricing has become competitive relative to other Mountain West metros.
Why 1031 & DST investors look here
- Flat 4.4% rate and full Section 1031 conformity
- Diversified Front Range economy anchored by Denver
- Strong multifamily and industrial fundamentals draw replacement capital
Replacement-property options
Replacement property can be located anywhere in the U.S. — like-kind treatment is nationwide. Colorado owners use DSTs, 721 UPREIT contributions, and Opportunity Zone investments to exchange into passive, professionally managed real estate, whether reinvesting along the Front Range or diversifying into other markets and asset classes.
Frequently asked questions
Does Colorado tax a 1031 exchange?
Colorado conforms to Section 1031, so a valid exchange defers Colorado tax; the gain is taxed at the flat 4.4% rate when recognized.
Can I exchange Colorado property for out-of-state DSTs?
Yes. Like-kind property can be anywhere in the U.S., and Colorado has no clawback rule requiring continued reporting of the deferred gain.
Does Colorado withhold when a nonresident sells property?
Colorado generally requires 2% withholding on sales by nonresident sellers, but that withholding can typically be reduced or eliminated when the sale is part of a qualifying like-kind exchange.
Gerald F. “Jerry” Baker, III — Founder & Managing Principal, Baker 1031 Investments · FINRA Series 22 / 63 · SIE. Read full bio →
State tax treatment is general and changes frequently; this page is educational and is not tax, legal, or investment advice. Confirm current state and local rules with your own CPA and attorney. Securities offered through Aurora Securities, member FINRA/SIPC. Real estate investments involve risk, including possible loss of principal.