Colorado Tax Law Updates for 2025–2026: What Taxpayers Need to Know – A General Overview

Colorado taxpayers should be aware of significant tax law changes affecting individuals, businesses, and clean energy incentives. Here’s a comprehensive breakdown of Colorado Tax Law Updates for 2025–2026, based on the latest state webinar.

EV & E-Bike Tax Credit Changes

House Bill 23-1272 made sweeping changes to Colorado’s Innovative Motor Vehicle and Truck Credits. The credits decrease sharply over the next two tax years:

Electric Vehicles (GVWR ≤ 8,500 lbs)
Tax Year	Base Credit	Assignment Credit	MSRP < $35K Bonus
2024	$5,000	$600	$2,500
2025	$3,500	$600	$2,500
2026	$750	Eliminated	$2,500

Heavier Light-Duty EVs (8,501–10,000 lbs)

Same reductions as above.

Medium Trucks (10,001–26,000 lbs)

$12,000 in 2024 and 2025
Drops to $4,000 in 2026

Heavy Trucks (>26,000 lbs)

$12,000 in 2024 and 2025
Drops to $8,000 in 2026

E-Bike Credit Reductions (2026)

Credit per sale: $250
Discount to customers: $225
Admin fee: $25

Elimination of Federal EV Credits

Federal EV tax credits under IRC Sections 25E, 30D, and 45W expired on September 30, 2025, affecting both individual and commercial EV buyers.

Overtime Pay Deduction & State Add-Back

A new federal deduction for overtime pay begins in 2025, reducing federal taxable income:

Max Deduction: $12,500 (single) / $25,000 (joint)
Phase-Out: Begins at $150K (single) / $300K (joint)

However, Colorado will require an “add-back” for this deduction starting in 2026 under HB 25-1296. This means:

2025: No Colorado tax on deducted overtime
2026: Add-back required; overtime taxed at the state level

Note: Tips deducted at the federal level are not added back for Colorado.

Senior Housing Credit Eliminated

The Senior Housing Credit is eliminated starting in 2025.
Instead, eligible seniors may use the Senior Homestead Property Tax Exemption.
There are no plans exist to reinstate the credit for 2026.

QBI Deduction Add-Back Now Permanent

Initially enacted in 2020, the Qualified Business Income (QBI) deduction add-back is now permanent.
Taxpayers must add back their federal QBI deduction when calculating Colorado taxable income.

Foreign-Derived Deductions & Combined Reporting

HB 25B-1002 brings new rules for corporations:

Starting in 2026, any FDDEI (Foreign-Derived Deduction-Eligible Income) claimed under federal law must be added back.
Certain foreign jurisdictions are now required to file combined Colorado returns.

Child & Dependent Care Credit Expanded

The former Child Care Credit (DR0347) has been expanded and renamed:
Now includes dependents of any age
Applies starting in 2025
Further modifications are coming in 2026 under HB 24-1134

High-Income Deduction Limits (Prop MM)

If your federal taxable income is $300,000+, new limitations apply in 2026:
Add-back required for federal standard or itemized deductions exceeding: $1,000 (single) & $2,000 (joint)Revenue funds the Healthy School Meals for All program.

Vendor Fee for State Sales Tax Ends (2026)

Starting January 1, 2026, no vendor fee will be allowed for state sales tax collection.
However, *some* local vendor fees may still apply.

Final Thoughts

2025 and 2026 bring major shifts in Colorado tax policy, especially around clean energy, high-income earners, and deductions. If you are reading this post please consider: