Capital gains tax is a tax on income received from the sale of an asset—such as a business, real estate, your home, stocks, bonds, coin collections, and jewelry. Capital gains tax is paid on the financial gain between the amount you paid for (or invested to build) the asset, and the amount for which it is sold.

The rate (percentage) paid as capital gains tax has traditionally been lower than the rate (percentage) paid on income tax. And the Internal Revenue Service (IRS) has traditionally taxed long term gains differently than short term gains—with the distinction based on how long the taxpayer owned or held the asset.

In Colorado, as in other states, capital gains tax applies to the profit made from selling an asset for more than its purchase price. Capital gains are taxed at both the federal and state levels. The federal tax rate on capital gains varies depending on the length of time the asset was held and the taxpayer's income level. Long-term capital gains, from assets held for more than one year, are taxed at a lower rate than short-term gains, which are from assets held for less than a year. As of the knowledge cutoff in 2023, Colorado taxes capital gains as regular income, so they are subject to the same state income tax rates as other types of income. The state does not have a separate capital gains tax rate. Taxpayers in Colorado must report capital gains on their state tax return, and these gains are also subject to federal capital gains tax regulations as outlined by the IRS.