Colorado’s military tax exemptions fall into five main categories: an income tax subtraction for active duty pay earned while stationed overseas, a subtraction for military retirement pay, a property tax exemption for veterans with a 100 percent service-connected disability, an income tax exemption for qualifying military spouses, and a vehicle ownership tax exemption for nonresident service members stationed in the state. Each has its own eligibility rules and dollar limits, so the benefit you claim depends on your service status, age, disability rating, and residency.
Active Duty Pay Earned Overseas
A Colorado resident on active duty who spends at least 305 days of the tax year stationed outside the 50-state boundary of the United States can file the Colorado income tax return as a nonresident.1Colorado Department of Revenue. Active Servicemembers Military pay earned during that overseas assignment is generally not subject to Colorado income tax, even though Colorado residency is maintained. The 305 days must fall within a single tax year.
The threshold is firm. No published waiver exists for service members who fell short because they rotated back to the U.S. before hitting 305 days. A separate subtraction is available for service members who reacquire Colorado residency during active duty by taking steps such as registering to vote or purchasing property in Colorado on or after January 1, 2016. That reacquired-residency subtraction does not require meeting the 305-day threshold.1Colorado Department of Revenue. Active Servicemembers
Either benefit is claimed on Form DR 0104 with the DR 0104AD Subtractions from Income Schedule.2Colorado Department of Revenue – Taxation. DR 0104AD – Subtractions from Income Schedule Keep your orders documenting the overseas assignment.
Military Retirement Subtraction
Retired service members can subtract a portion of their military retirement pay from Colorado taxable income. The cap depends on age at the end of the tax year and is fixed at these amounts for tax years 2022 through 2028:3Colorado Department of Revenue – Taxation. Retired Servicemembers
- Under age 55: up to $15,000
- Ages 55 through 64: up to $20,000
- Age 65 or older: up to $24,000
The subtraction applies only to the portion of retirement pay included in federal taxable income, and if your pension is smaller than the cap for your age, you can only subtract what you actually received. Colorado does not offer a full exemption for military retirement during this period.3Colorado Department of Revenue – Taxation. Retired Servicemembers
Colorado also has a general retirement income subtraction available to all residents. If you qualify for both, you cannot stack them to exceed the maximum the law allows for your age. Claim the subtraction on Form DR 0104AD with your return.2Colorado Department of Revenue – Taxation. DR 0104AD – Subtractions from Income Schedule
Property Tax Exemption for Disabled Veterans
Section 3.5 of Article X of the Colorado Constitution exempts 50 percent of the first $200,000 of actual value on a qualifying home from property tax. To qualify, you must meet each of these requirements:
- You served on active duty in the U.S. armed forces, including Colorado National Guard members called to active federal service, and received an honorable discharge.
- The U.S. Department of Veterans Affairs has rated you 100 percent permanently and totally disabled from a service-connected condition, or has granted you individual unemployability status.
- You own and occupy the home as your primary residence as of the assessment date.
Surviving spouses can continue the exemption if the veteran died in the line of duty or previously qualified, provided the spouse still owns and occupies the home. Only one exemption applies per tax year, so if you also qualify for the senior homestead exemption you’ll choose one.
Applications go to your local County Assessor, with the state Division of Property Taxation verifying disability status. The standard deadline is July 1 of the tax year. You’ll need your DD-214 and a VA award letter confirming the 100 percent permanent rating or individual unemployability determination. If you move, you have to reapply for the new property.
Income Tax Relief for Military Spouses
Under the federal Military Spouses Residency Relief Act, a spouse who moved to Colorado solely to accompany a service member stationed here can keep paying income tax to their original home state instead of Colorado. Wages earned in Colorado are then not subject to Colorado income tax.
Three conditions must be met:
- You and the service member are legally married.
- You relocated to Colorado from another state specifically to accompany your spouse on military orders.
- You are earning income in Colorado.
File Form DR 1059, the Affidavit of Exemption for the Nonresident Spouse of a Servicemember, with your Colorado employer to stop state withholding. If tax was already withheld before you filed the affidavit, claim a refund on your Colorado return. A DR 0004 Colorado Employee Withholding Certificate can help your employer adjust future withholding correctly.4Colorado Department of Revenue – Taxation. DR 0004 – Colorado Employee Withholding Certificate
One boundary to watch: the exemption covers wages for services you perform. Rental income from Colorado property and other Colorado-sourced unearned income may still be taxable here.
Vehicle Ownership Tax Exemption for Nonresident Service Members
Active duty service members stationed in Colorado who are legal residents of another state can avoid Colorado’s specific ownership tax on their vehicles. This is separate from registration fees and can run to several hundred dollars a year depending on the vehicle’s value and age.
To claim it, submit an affidavit stating you are not a Colorado resident. A few practical rules: each vehicle needs its own affidavit, the affidavit must be renewed annually, and each one is only valid for 60 days from the date signed. If someone else handles the paperwork for you, they need an original general power of attorney. Orders showing a Colorado duty station are the primary supporting document.
Documents You’ll Need
The DD-214 is the foundational document across nearly every benefit, confirming service dates, branch, and discharge status. For disability-based benefits, add the VA award letter showing the 100 percent permanent rating or individual unemployability determination. For the overseas active duty subtraction, keep the orders documenting your assignment. For the spousal exemption, keep your marriage record and the service member’s orders assigning them to Colorado.
Income tax benefits move through Form DR 0104 with the DR 0104AD subtraction schedule.2Colorado Department of Revenue – Taxation. DR 0104AD – Subtractions from Income Schedule The property tax exemption runs on its own track through the County Assessor, and the vehicle ownership tax exemption is handled at the county level with the annual affidavit.