Guest commentary: Noteworthy Colorado tax law changes for 2022
As we’re now one month into 2022, it may be a good time to think about how you’re going to position yourself from a financial perspective. Last year, Colorado lawmakers made significant changes to the state tax code. While the changes are expected to touch most Colorado taxpayers in one way or another, certain adjustments are more likely to impact the wealthiest Coloradans.
Here are three new tax provisions to keep in mind:
No. 1 — Fewer deductions for high earners
If you make more than $400,000 annually, you’ll face a new limit on itemized deductions on your Colorado tax return. That limit is $30,000 for single filers and $60,000 for joint filers.
Business owners earning more than $500,000 individually or $1 million jointly must continue to add back federally qualified business income deductions when figuring their Colorado taxable income. This requirement is scheduled to remain in effect until at least 2025.
No. 2 — Property taxes
Under the new tax code, property owners may see temporarily lower property tax rates in tax years 2022 and 2023. Single-family homeowners will get a discount of about 3%, while owners of multi-family properties will see their taxes drop by about 5%.
However, the lower rates don’t necessarily mean that you’ll see a lower property tax bill. House Bill 1164 seeks to correct the balance between what the state pays and what school districts pay to finance public education by allowing districts to slowly raise their mill levy rates.
In November, Roaring Fork School District voters passed a measure to increase property taxes to source funds for increasing teacher salaries. The mill levy override went into effect Jan. 1, and the actual allotment was scheduled to be determined at the end of last month.
No. 3 — Capital gains tax and Social Security benefits
Currently, Colorado taxpayers can be exempted from paying state taxes on federally taxable capital gains in some cases. The new tax provisions eliminate that benefit, forcing most people to pay state taxes when they sell property and other types of investments.
However, there is some good news for retired Coloradans. Specifically, if you’re over age 65 and receiving Social Security benefits, you may receive a partial tax break this year.
Previously, Colorado taxpayers could deduct up to $24,000 of Social Security income from their taxable income. Now the deduction is unlimited, effectively eliminating state taxes on Social Security benefits for people over age 65.
Planning for future changes
While these tax changes are among the most significant in Colorado history, the laws are continually in flux. The same can be said at the federal level as well.
Anticipating relevant changes to the tax code and planning accordingly can help you preserve your wealth and maximize charitable giving. Consider enlisting the help of a fiduciary financial adviser, who can keep you informed and recommend specific strategies to minimize your tax bill.
Brian Littlejohn, MBA, CFP®, CFA is the founder of Sherwood Wealth Management, an independent registered investment advisor firm. He lives in Woody Creek and works with clients in the Roaring Fork Valley and beyond.