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Second Regular Session
Seventy-fifth General Assembly
STATE OF COLORADO
INTRODUCED
LLS NO. 26-0464.01 Alison Killen x4350 HOUSE BILL 26-1222
House Committees Senate Committees
Finance
A BILL FOR AN ACT
CONCERNING THE MODIFICATION OF TAX EXPENDITURES , AND , IN101
CONNECTION THEREWITH , MAKING ADDITIONS TO THE102
DEFINITION OF FEDERAL TAXABLE INCOME FOR TAX YEARS103
COMMENCING ON OR AFTER JANUARY 1, 2027, AND CREATING104
THE FAMILY AFFORDABILITY CREDIT.105
Bill Summary
(Note: This summary applies to this bill as introduced and does
not reflect any amendments that may be subsequently adopted. If this bill
passes third reading in the house of introduction, a bill summary that
applies to the reengrossed version of this bill will be available at
http://leg.colorado.gov.)
Recent changes to the federal income tax code significantly
increased the amount of business-related expenses that may be deducted
HOUSE SPONSORSHIP
Garcia and McCormick,
SENATE SPONSORSHIP
Kipp,
Shading denotes HOUSE amendment. Double underlining denotes SENATE amendment.
Capital letters or bold & italic numbers indicate new material to be added to existing law.
Dashes through the words or numbers indicate deletions from existing law.
for federal income tax purposes as follows:
! Expanded the business interest deduction limitation
pursuant to section 163 (j) of the internal revenue code
(IRC) by adding back depreciation, amortization, and
depletion for calculation of adjusted taxable income and
determination of the deduction base, resulting in many
taxpayers, especially capital intensive businesses, being
able to deduct a larger portion of their business interest
expense;
! Expanded the bonus depreciation deduction pursuant to
section 168 (k) of the IRC by permanently restoring the
100% first-year bonus depreciation deduction for "qualified
property" acquired and placed in service on or after January
20, 2025;
! Created an elective 100% depreciation deduction in section
168 (n) of the IRC for "qualified production property",
which is property largely tied to manufacturing, production,
or refining facilities and that would not otherwise qualify
for section 168 (k) bonus depreciation; and
! Created a new section 174A of the IRC that allows
taxpayers to immediately deduct domestic research and
experimental expenditures paid or incurred during the
taxable year, rather than requiring such costs to be
capitalized and amortized over time.
Because the state income tax is imposed on federal taxable
income, these changes to the definition of federal income also exclude
these business-related expenses from state income taxation. The bill
reverses these changes to the federal tax code for purposes of the state
income tax code and creates a new tax credit using the resulting revenue.
Sections 2 and 4 of the bill provide, for income tax years
commencing on or after January 1, 2027, that individual and corporate
state income taxpayers must add the following to their federal taxable
income for purposes of applying the state income tax:
! An amount equal to the federal deduction claimed by the
taxpayer for business interest pursuant to the limitation in
section 163 (j) of the IRC to the extent the amount exceeds
the amount the taxpayer would have been allowed to claim
before the limitation was changed as described above;
! An amount equal to the federal deduction claimed by the
taxpayer for qualified property depreciation pursuant to
section 168 (k) of the IRC to the extent the amount claimed
exceeds the amount the taxpayer would have been allowed
to claim under section 168 (k) prior to the change described
above; except that, the taxpayer may reduce the amount
required to be added back by the amount of depreciation
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the taxpayer would have been allowed to claim for the
taxable year with respect to the same property pursuant to
any section other than section 168 (k) of the IRC prior to
the recent federal changes;
! An amount equal to the federal deduction claimed by the
taxpayer for qualified production property depreciation
pursuant to section 168 (n) of the IRC; except that, the
taxpayer may reduce the amount required to be added back
by the amount of depreciation the taxpayer would have
been allowed to claim for the taxable year with respect to
the same property pursuant to any section other than
section 168 (k) of the IRC prior to the recent federal
change; and
! An amount equal to the federal deduction claimed by the
taxpayer for the income tax year for domestic research and
experimental expenditures pursuant to section 174A of the
IRC; except that, the taxpayer may reduce the amount
required to be added back by the amount of the deduction
the taxpayer would have been allowed to claim for the
taxable year with respect to the same research and
experimental expenditures pursuant to section 174 of the
IRC prior to the recent federal changes.
Sections 2 and 4 allow taxpayers who are required to make
additions to their federal taxable income pursuant to the new provisions
to subtract the amounts of their disallowed federal deductions over time,
using time periods that reflect how the property or expense would have
been treated prior to the recent changes to the federal tax code.
Section 3 creates a new tax credit. The new tax credit allows
taxpayers to claim a refundable tax credit, in addition to the child tax
credit and the family affordability tax credit, in an amount determined by
the amount and age of the taxpayer's children and the taxpayer's income.
The total amount of the new tax credit is adjusted annually based on
legislative council staff projections, such that the total amount of the new
tax credit claimed in an income tax year is projected to be the same as the
amount of revenue raised in sections 2 and 4.
Be it enacted by the General Assembly of the State of Colorado:1
SECTION 1. Legislative declaration.2
(1) The general assembly finds and declares that:3
(a) The general assembly has an ongoing responsibility to review,4
evaluate, and update the state tax code within constitutional limitations5
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to ensure that the state code is effective, equitable, and aligned with1
Colorado's priorities;2
(b) (I) Recent changes in the federal tax code materially expanded3
certain business-related deductions, including deductions related to4
business interest expense, bonus depreciation, qualified production5
property, and domestic research and experimental expenditures (business6
deductions).7
(II) The business deductions significantly reduce federal taxable8
income without regard to a taxpayer's ability to pay or connection to9
household economic security.10
(c) (I) Colorado state income tax is determined based on the11
amount of a person's federal taxable income.12
(II) The material expansion of the federal business deductions13
modified the computation of federal taxable income and so impacted14
Colorado state income tax revenue.15
(III) The net impact of the recent federal tax code modification to16
the computation of federal taxable income was a reduction in state17
income tax revenue.18
(IV) The amount and availability of the family affordability tax19
credit is determined in part by the amount of state income tax revenue.20
(V) Therefore, by modifying the computation of federal taxable21
income, the expansion of the business deductions impacted the amount22
and availability of the family affordability tax credit.23
(VI) At least in part due to the enactment of recent changes to the24
federal tax code, the family affordability tax credit will not be available25
for the 2026 state income tax year and will be available in a reduced26
amount for income tax years 2027 and 2028.27
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(d) (I) In establishing the family affordability tax credit, the1
general assembly found and declared that:2
(A) Colorado families struggle to afford many necessary goods3
and services, such as child care, housing, and health care. Eighty-three4
percent of Colorado parents worry that their children won't be able to5
afford to live in the state in the future.6
(B) Targeted tax credits are a proven tool to lift families out of7
poverty. Research has shown that families that claim these types of tax8
credits, such as the state and federal child tax credit and the state and9
federal earned income tax credit, have better health, improved schooling10
outcomes, and increased adult earning potential. As the cost of raising11
children has increased, a family affordability tax credit is critical for the12
well-being of many children and families across Colorado.13
(C) According to the Institute on Taxation and Economic Policy,14
"[t]o cut child poverty rates by half, the majority of states would require15
a base credit value of between three thousand dollars and four thousand16
five hundred dollars per child plus a twenty percent boost for young17
children". When coupled with the state and federal earned income tax18
credit and the state and federal child tax credit, the additional investment19
provided by the family affordability tax credit would establish Colorado20
as a national leader in equitable economic policy.21
(D) Colorado is dealing with rising costs and funding shortfalls in22
many areas across our state, and it is necessary to provide tax credits to23
the people who need it most in a way that will do the most good.24
Establishing the family affordability tax credit is a proven way to do that;25
and26
(E) By prioritizing the state's lowest-income households,27
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expanding the child age eligibility, and including more families, the state1
can provide research-backed investments for families. Through2
thoughtful and strategic investment, Colorado can cut child poverty nearly3
in half.4
(II) Therefore, it is a priority of Colorado to provide a tax credit5
that targets the same taxpayers that the family affordability tax credit6
targeted, to offset the reduction in the family affordability tax credit. 7
(e) (I) This House Bill 26- constitutes a single8
comprehensive tax policy change that better aligns the state tax code with9
Colorado's priorities by, at least partially, mitigating the modified federal10
income tax code's effects on the family affordability tax credit by creating11
a tax credit that targets the same population that the family affordability12
tax credit targeted while also requiring taxpayers to add back to their13
taxable income only the incremental income amounts attributable to the14
recent expansion of the federal business deductions. The expanded15
business deductions disproportionately benefit large and capital-intensive16
businesses, while providing little or no direct benefit to low- and17
moderate-income households, which households are particularly sensitive18
to changes in tax policy and public investment. While Colorado's income19
tax system is designed to conform to federal law generally, state law also20
preserves the general assembly's authority to decouple from federal tax21
provisions that undermine state fiscal stability, equity, or policy priorities.22
This House Bill 26- preserves the integrity of the state's23
commitment to support low-income households, while maintaining24
long-standing federal conformity for core income calculations and the25
state income tax base.26
(II) The income tax credit created in this House Bill 26- 27
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reduces state tax revenue in an amount equal to or greater than the1
amount of state revenue gain attributable to the changes made in this2
House Bill 26- ;3
(III) Any net district revenue gain resulting from the tax policy4
change in this House Bill 26- is incidental and de minimis; and5
(IV) Therefore, consistent with the Colorado Supreme Court's6
holding in TABOR Found. v. Reg'l Transp. Dist., 2018 CO 29, that a tax7
policy change that causes either no net district tax revenue gain or a net8
district tax revenue gain that is only incidental and de minimis does not9
require voter approval under section 20 (4)(a) of article X of the state10
constitution, this House Bill 26- is not a tax policy change that11
requires voter approval.12
SECTION 2. In Colorado Revised Statutes, 39-22-104, add13
(3)(v), (3)(w), (3)(x), (3)(y), and (4)(ff) as follows:14
39-22-104. Income tax imposed on individuals, estates, and15
trusts - single rate - report - tax preference performance statement16
- legislative declaration - definitions - repeal.17
(3) There shall be added to the federal taxable income:18
(v) FOR INCOME TAX YEARS COMMENCING ON OR AFTER JANUARY19
1, 2027, AN AMOUNT EQUAL TO THE FEDERAL DEDUCTION CLAIMED BY THE20
TAXPAYER FOR THE INCOME TAX YEAR FOR BUSINESS INTEREST PURSUANT21
TO SECTION 163 OF THE INTERNAL REVENUE CODE TO THE EXTENT THE22
AMOUNT CLAIMED EXCEEDS THE AMOUNT THE TAXPAYER WOULD HAVE23
BEEN ALLOWED TO CLAIM PURSUANT TO THE LIMITATION ON BUSINESS24
INTEREST SET FORTH IN SECTION 163 (j) OF THE INTERNAL REVENUE CODE25
WITHOUT REGARD TO ANY AMENDMENT BY PUB. L. 119-21;26
(w) FOR INCOME TAX YEARS COMMENCING ON OR AFTER JANUARY27
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1, 2027, AN AMOUNT EQUAL TO THE FEDERAL DEDUCTION CLAIMED BY THE1
TAXPAYER FOR THE INCOME TAX YEAR FOR QUALIFIED PROPERTY2
DEPRECIATION PURSUANT TO SECTION 168 (k) OF THE INTERNAL REVENUE3
CODE TO THE EXTENT THE AMOUNT CLAIMED EXCEEDS THE AMOUNT THE4
TAXPAYER WOULD HAVE BEEN ALLOWED TO CLAIM PURSUANT TO SECTION5
168 (k) OF THE INTERNAL REVENUE CODE WITHOUT REGARD TO ANY6
AMENDMENT BY PUB. L. 119-21; EXCEPT THAT , THE TAXPAYER MAY7
REDUCE THE AMOUNT OTHERWISE REQUIRED TO BE ADDED TO THE8
TAXPAYER'S FEDERAL TAXABLE INCOME PURSUANT TO THIS SUBSECTION9
(3)(w) BY THE AMOUNT OF QUALIFIED PROPERTY DEPRECIATION THE10
TAXPAYER WOULD HAVE BEEN ALLOWED TO CLAIM FOR THE INCOME TAX11
YEAR WITH RESPECT TO THE SAME PROPERTY PURSUANT TO ANY SECTION12
OTHER THAN SECTION 168 (k) OF THE INTERNAL REVENUE CODE WITHOUT13
REGARD TO ANY AMENDMENT BY PUB. L. 119-21;14
(x) FOR INCOME TAX YEARS COMMENCING ON OR AFTER JANUARY15
1, 2027, AN AMOUNT EQUAL TO THE FEDERAL DEDUCTION CLAIMED BY THE16
TAXPAYER FOR THE INCOME TAX YEAR FOR QUALIFIED PRODUCTION17
PROPERTY DEPRECIATION PURSUANT TO SECTION 168 (n) OF THE INTERNAL18
REVENUE CODE; EXCEPT THAT, THE TAXPAYER MAY REDUCE THE AMOUNT19
OTHERWISE REQUIRED TO BE ADDED TO THE TAXPAYER 'S FEDERAL20
TAXABLE INCOME PURSUANT TO THIS SUBSECTION (3)(x) BY THE AMOUNT21
OF QUALIFIED PRODUCTION PROPERTY DEPRECIATION THE TAXPAYER22
WOULD HAVE BEEN ALLOWED TO CLAIM FOR THE INCOME TAX YEAR WITH23
RESPECT TO THE SAME PROPERTY PURSUANT TO ANY SECTION OTHER THAN24
SECTION 168 (k) OF THE INTERNAL REVENUE CODE WITHOUT REGARD TO25
ANY AMENDMENT BY PUB. L. 119-21; AND26
(y) FOR INCOME TAX YEARS COMMENCING ON OR AFTER JANUARY27
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1, 2027, AN AMOUNT EQUAL TO THE FEDERAL DEDUCTION CLAIMED BY THE1
TAXPAYER FOR THE INCOME TAX YEAR FOR DOMESTIC RESEARCH AND2
EXPERIMENTAL EXPENDITURES PURSUANT TO SECTION 174A OF THE3
INTERNAL REVENUE CODE ; EXCEPT THAT , THE TAXPAYER MAY REDUCE4
THE AMOUNT OTHERWISE REQUIRED TO BE ADDED TO THE TAXPAYER 'S5
FEDERAL TAXABLE INCOME PURSUANT TO THIS SUBSECTION (3)(y) BY THE6
AMOUNT OF THE DEDUCTION THE TAXPAYER WOULD HAVE BEEN ALLOWED7
TO CLAIM FOR THE INCOME TAX YEAR WITH RESPECT TO THE SAME8
RESEARCH AND EXPERIMENTAL EXPENDITURES PURSUANT TO SECTION 1749
OF THE INTERNAL REVENUE CODE WITHOUT REGARD TO ANY AMENDMENT10
BY PUB. L. 119-21.11
(4) There shall be subtracted from federal taxable income:12
(ff) (I) F OR INCOME TAX YEARS COMMENCING ON OR AFTER13
JANUARY 1, 2028, A TAXPAYER REQUIRED TO MAKE AN ADDITION TO14
FEDERAL TAXABLE INCOME PURSUANT TO SUBSECTION (3)(v), (3)(w),15
(3)(x), OR (3)(y) OF THIS SECTION, IS ALLOWED TO APPLY THE FOLLOWING16
SUBTRACTIONS IN ACCORDANCE WITH THIS SUBSECTION (4)(ff):17
(A) A N AMOUNT EQUAL TO ONE -FIFTH OF THE CUMULATIVE18
AMOUNT ADDED TO FEDERAL T AXABLE INCOME AS REQUIRED BY19
SUBSECTION (3)(v) OF THIS SECTION FOR EACH OF THE FIVE INCOME TAX20
YEARS IMMEDIATELY FOLLOWING THE INCOME TAX YEAR IN WHICH THE21
ADDITION WAS REQUIRED PURS UANT TO SUBSECTION (3)(v) OF THIS22
SECTION;23
(B) A N AMOUNT EQUAL TO ONE -TENTH OF THE CUMULATIVE24
AMOUNT ADDED TO FEDERAL T AXABLE INCOME AS REQUIRED BY25
SUBSECTION (3)(w) OF THIS SECTION FOR EACH OF THE TEN INCOME TAX26
YEARS IMMEDIATELY FOLLOWING THE INCOME TAX YEAR IN WHICH THE27
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ADDITION WAS REQUIRED PURSUANT TO SUBSECTION (3)(w) OF THIS1
SECTION;2
(C) A N AMOUNT EQUAL TO ONE THIRTY -EIGHTH OF THE3
CUMULATIVE AMOUNT ADDED TO FEDERAL TAXABLE INCOME AS REQUIRED4
BY SUBSECTION (3)(v) OF THIS SECTION FOR EACH OF THE THIRTY-EIGHT5
INCOME TAX YEARS IMMEDIATELY FOLLOWING THE INCOME TAX YEAR IN6
WHICH THE ADDITION WAS REQUIRED PURSUANT TO SUBSECTION (3)(v) OF7
THIS SECTION; AND8
(D) A N AMOUNT EQUAL TO ONE -FOURTH OF THE CUMULATIVE9
AMOUNT ADDED TO FEDERAL TAXABLE INCOME AS REQUIRED BY10
SUBSECTION (3)(y) OF THIS SECTION FOR EACH OF THE FOUR INCOME TAX11
YEARS IMMEDIATELY FOLLOWING THE INCOME TAX YEAR IN WHICH THE12
ADDITION WAS REQUIRED PURS UANT TO SUBSECTION (3)(y) OF THIS13
SECTION.14
(II) T HE TOTAL AMOUNT OF EACH SUBTRACTION ALLOWED15
PURSUANT TO SUBSECTIONS (4)(ff)(I), (4)(ff)(II), (4)(ff)(III), AND16
(4)(ff)(IV) OF THIS SECTION FOR A TAXPAYER SHALL NOT EXCEED THE17
CUMULATIVE AMOUNT ADDED TO FEDERAL TAXABLE INCOME PURSUANT18
TO EACH CORRESPONDING ADDITION REQUIRED BY SUBSECTIONS (3)(v),19
(3)(w), (3)(x), AND (3)(y) OF THIS SECTION FOR THAT SAME TAXPAYER.20
(III) THE SUBTRACTIONS ALLOWED PURSUANT TO THIS SUBSECTION21
(4)(ff) APPLY AFTER THE APPLICATION OF THE OTHER SUBTRACTIONS22
PROVIDED FOR IN THIS SUBSECTION (4), EXCEPT FOR THE SUBTRACTION23
ALLOWED PURSUANT TO SUBSECTION (4)(z) OF THIS SECTION . IF THE24
AMOUNT OF THE SUBTRACTIONS ALLOWED UNDER THIS SUBSECTION (4)(ff)25
EXCEEDS A TAXPAYER 'S FEDERAL TAXABLE INCOME AS CALCULATED26
PURSUANT TO THIS SECTION WITHOUT REGARD TO THE SUBTRACTION27
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ALLOWED PURSUANT TO SUBSECTION (4)(z) OF THIS SECTION, THE AMOUNT1
NOT SUBTRACTED FROM THE TAXPAYER 'S FEDERAL TAXABLE INCOME2
PURSUANT TO THIS SECTION MAY BE CARRIED FORWARD AND USED AS A3
SUBTRACTION FROM THE TAXPAYER 'S FEDERAL TAXABLE INCOME AS4
CALCULATED PURSUANT TO THIS SECTION WITHOUT REGARD TO THE5
SUBTRACTION ALLOWED PURSUANT TO SUBSECTION (4)(z) OF THIS6
SECTION IN SUBSEQUENT YEARS FOR A PERIOD NOT TO EXCEED TEN YEARS7
AND MUST BE APPLIED FIRST TO THE EARLIEST POSSIBLE INCOME TAX8
YEAR. ANY SUBTRACTION REMAINING AFTER THE PERIOD IS NOT9
REFUNDED OR CREDITED TO THE QUALIFIED TAXPAYER.10
SECTION 3. In Colorado Revised Statutes, add 39-22-131 as11
follows:12
39-22-131. Family affordability credit - tax preference13
performance statement - legislative declaration - definitions.14
(1) (a) I N ACCORDANCE WITH SECTION 39-21-304 (1), WHICH15
REQUIRES EACH BILL THAT CREATES A NEW TAX EXPENDITURE TO INCLUDE16
A TAX PREFERENCE PERFORMANCE STATEMENT AS PART OF A STATUTORY17
LEGISLATIVE DECLARATION, THE GENERAL ASSEMBLY HEREBY FINDS AND18
DECLARES THAT THE PURPOSES OF THE INCOME TAX CREDIT CREATED IN19
THIS SECTION ARE THE SAME AS THE FAMILY AFFORDABILITY TAX CREDIT:20
TO SUBSTANTIALLY REDUCE CHILD POVERTY , MAKE COLORADO MORE21
AFFORDABLE FOR FAMILIES , AND HELP FAMILIES AFFORD EXPENSES22
ASSOCIATED WITH HAVING CHILDREN BY PROVIDING TAX RELIEF FOR23
CERTAIN INDIVIDUALS.24
(b) T HE GENERAL ASSEMBLY AND THE STATE AUDITOR , IN25
CONSULTATION WITH THE DEPARTMENT , SHALL MEASURE THE26
EFFECTIVENESS OF THE INCOME TAX CREDIT CREATED IN THIS SECTION IN27
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COMBINATION WITH THE FAMILY AFFORDABILITY TAX CREDIT AND, IN THE1
SAME MANNER AS THE GENERAL ASSEMBLY AND THE STATE AUDITOR2
MEASURE THE EFFECTIVENESS OF THE FAMILY AFFORDABILITY TAX CREDIT3
BY DETERMINING THE NUMBER OF COLORADO FAMILIES THAT , AFTER4
CLAIMING A CREDIT PURSUANT TO THIS SECTION AND THE FAMILY5
AFFORDABILITY CREDIT, NO LONGER FALL BELOW THE FEDERAL POVERTY6
LEVEL IN THE TAX YEAR IN WHICH THEY CLAIMED THE CREDITS.7
(2) AS USED IN THIS SECTION, UNLESS THE CONTEXT OTHERWISE8
REQUIRES:9
(a) "CREDIT" MEANS THE CREDIT AGAINST INCOME TAX CREATED10
IN THIS SECTION.11
(b) "DEPARTMENT" MEANS THE DEPARTMENT OF REVENUE.12
(c) "ELIGIBLE CHILD" MEANS A QUALIFYING CHILD, AS DEFINED IN13
SECTION 152 (c) OF THE FEDERAL "INTERNAL REVENUE CODE OF 1986";14
EXCEPT THAT THE AGE REQUIREMENTS ARE SET FORTH IN SUBSECTIONS15
(3)(a)(I), (3)(a)(II), (3)(b)(I), AND (3)(b)(II) OF THIS SECTION.16
(d) "FEDERAL POVERTY LEVEL" MEANS THE POVERTY LINE THAT17
IS REQUIRED TO BE UPDATED ANNUALLY WITHIN THE FEDERAL POVERTY18
GUIDELINES ADOPTED BY THE UNITED STATES DEPARTMENT OF HEALTH19
AND HUMAN SERVICES PURSUANT TO 42 U.S.C. SEC. 9902 (2).20
(e) "INFLATION" MEANS THE ANNUAL PERCENTAGE CHANGE IN THE21
UNITED STATES DEPARTMENT OF LABOR BUREAU OF LABOR STATISTICS22
CONSUMER PRICE INDEX FOR DENVER-AURORA-LAKEWOOD FOR ALL23
ITEMS PAID BY ALL URBAN CONSUMERS , OR ITS APPLICABLE SUCCESSOR24
INDEX.25
(3) (a) I N ADDITION TO THE CHILD TAX CREDIT ALLOWED BY26
SECTION 39-22-129 AND THE FAMILY AFFORDABILITY TAX CREDIT27
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ALLOWED BY SECTION 39-22-130, FOR INCOME TAX YEARS COMMENCING1
ON OR AFTER JANUARY 1, 2027, A RESIDENT INDIVIDUAL WHO FILES A2
SINGLE RETURN IS ALLOWED A CREDIT AGAINST THE INCOME TAXES3
IMPOSED PURSUANT TO THIS ARTICLE 22 FOR:4
(I) E ACH ELIGIBLE CHILD OF THE RESIDENT INDIVIDUAL WHO IS5
FIVE YEARS OLD OR YOUNGER AT THE CLOSE OF THE INCOME TAX YEAR IN6
AN AMOUNT DETERMINED BY STAFF OF THE LEGISLATIVE COUNCIL7
PURSUANT TO SUBSECTION (5)(b) OF THIS SECTION; AND8
(II) EACH ELIGIBLE CHILD OF THE RESIDENT INDIVIDUAL WHO IS SIX9
YEARS OLD OR OLDER BUT LESS T HAN SEVENTEEN YEARS OLD AT THE10
CLOSE OF THE INCOME TAX YEAR IN AN AMOUNT THAT IS SEVENTY -FIVE11
PERCENT OF THE AMOUNT ALLOWED IN SUBSECTION (3)(a)(I) OF THIS12
SECTION.13
(b) IN ADDITION TO THE CHILD TAX CREDIT ALLOWED BY SECTION14
39-22-129 AND THE FAMILY AFFORDABILITY TAX CREDIT ALLOWED BY15
SECTION 39-22-130, FOR INCOME TAX YEARS COMMENCING ON OR AFTER16
JANUARY 1, 2027, TWO RESIDENT INDIVIDUALS WHO FILE A JOINT RETURN17
ARE ALLOWED A FAMILY AFFORDABILITY TAX CREDIT AGAINST THE18
INCOME TAXES DUE IMPOSED PURSUANT TO THIS ARTICLE 22 FOR:19
(I) E ACH ELIGIBLE CHILD OF THE RESIDENT INDIVIDUAL WHO IS20
FIVE YEARS OLD OR YOUNGER AT THE CLOSE OF THE INCOME TAX YEAR IN21
AN AMOUNT DETERMINED BY STAFF OF THE LEGISLATIVE COUNCIL22
PURSUANT TO SUBSECTION (5)(b) OF THIS SECTION; AND23
(II) EACH ELIGIBLE CHILD OF THE RESIDENT INDIVIDUAL WHO IS SIX24
YEARS OLD OR OLDER BUT LESS THAN SEVENTEEN YEARS OLD AT THE25
CLOSE OF THE INCOME TAX YEAR IN AN AMOUNT THAT IS SEVENTY -FIVE26
PERCENT OF THE AMOUNT ALLOWED IN SUBSECTION (3)(b)(I) OF THIS27
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SECTION.1
(4) (a) NOTWITHSTANDING SUBSECTION (3) OF THIS SECTION, FOR2
INCOME TAX YEARS COMMENCING ON OR AFTER JANUARY 1, 2027, THE3
CREDIT AMOUNTS IN:4
(I) SUBSECTION (3)(a)(I) OF THIS SECTION ARE REDUCED, BUT NOT5
BELOW ZERO , BY AN AMOUNT EQUAL TO SIX AND EIGHT HUNDRED6
SEVENTY-FIVE ONE-THOUSANDTHS PERCENT FOR EACH FIVE THOUSAND7
DOLLARS BY WHICH A RESIDENT INDIVIDUAL'S ADJUSTED GROSS INCOME8
EXCEEDS FIFTEEN THOUSAND DOLLARS; AND9
(II) SUBSECTION (3)(b)(I) OF THIS SECTION ARE REDUCED, BUT NOT10
BELOW ZERO , BY AN AMOUNT EQUAL TO SIX AND EIGHT HUNDRED11
SEVENTY-FIVE ONE-THOUSANDTHS PERCENT FOR EACH FIVE THOUSAND12
DOLLARS BY WHICH TWO RESIDENT INDIVIDUALS ' ADJUSTED GROSS13
INCOME EXCEEDS TWENTY-FIVE THOUSAND DOLLARS.14
(b) FOR INCOME TAX YEARS COMMENCING ON OR AFTER JANUARY15
1, 2028, THE DEPARTMENT SHALL ADJUST THE FEDERAL ADJUSTED GROSS16
INCOME AMOUNTS SET FORTH IN THIS SUBSECTION (4) TO REFLECT17
INFLATION FOR EACH INCOME TAX YEAR IN WHICH THE CREDIT DESCRIBED18
IN THIS SECTION IS ALLOWED IF CUMULATIVE INFLATION SINCE THE LAST19
ADJUSTMENT, WHEN APPLIED TO THE CURRENT LIMITS , RESULTS IN AN20
INCREASE OF AT LEAST ONE THOUSAND DOLLARS WHEN THE ADJUSTED21
LIMITS ARE ROUNDED TO THE NEAREST ONE THOUSAND DOLLARS.22
(5) B EGINNING WITH THE QUARTERLY DECEMBER REVENUE23
FORECAST THAT LEGISLATIVE COUNCIL STAFF PRESENTS IN DECEMBER OF24
2027, AND FOR EACH DECEMBER REVENUE FORECAST THEREAFTER , AS25
PART OF THE QUARTERLY DECEMBER REVENUE FORECAST, LEGISLATIVE26
COUNCIL STAFF SHALL DETERMINE:27
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(a) FOR THE CURRENT INCOME TAX YEAR , A PROJECTION OF THE1
NET AMOUNT OF REVENUE GAIN DIRECTLY ATTRIBUTABLE TO THE2
CHANGES MADE IN THIS HOUSE BILL 26- , NOTWITHSTANDING THE3
TAX CREDIT CREATED IN THIS SECTION;4
(b) A DOLLAR AMOUNT OF THE CREDIT AVAILABLE PURSUANT TO5
SUBSECTIONS (3)(a)(I) AND (3)(b)(I) OF THIS SECTION , WHICH DOLLAR6
AMOUNT MUST BE THE SAME FOR BOTH SUBSECTIONS (3)(a)(I) AND7
(3)(b)(I) OF THIS SECTION , SUCH THAT THE STAFF OF THE LEGISLATIVE8
COUNCIL PROJECTS, FOR THE CURRENT STATE INCOME TAX YEAR , THAT9
THE TOTAL DOLLAR AMOUNT OF CREDITS CLAIMED PURSUANT TO10
SUBSECTION (3) WILL EQUAL THE DOLLAR AMOUNT THAT STAFF OF THE11
LEGISLATIVE COUNCIL DETERMINE PURSUANT TO SUBSECTION (5)(a) OF12
THIS SECTION.13
(6) N O LATER THAN TWO WEEKS BEFORE THE QUARTERLY14
DECEMBER REVENUE FORECAST THAT LEGISLATIVE COUNCIL STAFF15
PRESENTS IN DECEMBER OF 2028, AND EACH DECEMBER REVENUE16
FORECAST THEREAFTER, THE DEPARTMENT SHALL DELIVER A REPORT TO17
THE STAFF OF THE LEGISLATIVE COUNCIL THAT DESCRIBES THE REVENUE18
GAIN DIRECTLY ATTRIBUTABLE TO THE CHANGES MADE IN THIS HOUSE19
BILL 26- FOR THE PREVIOUS INCOME TAX YEAR, NOTWITHSTANDING20
THE TAX CREDIT CREATED IN THIS SECTION.21
(7) IN THE CASE OF A PART-YEAR RESIDENT, THE CREDIT ALLOWED22
UNDER THIS SECTION IS APPORTIONED IN THE RATIO DETERMINED UNDER23
SECTION 39-22-110 (1).24
(8) T HE CREDIT ALLOWED UNDER THIS SECTION IS NOT25
CONSIDERED TO BE INCOME OR RESOURCES FOR THE PURPOSE OF26
DETERMINING ELIGIBILITY FOR THE PAYMENT OF PUBLIC ASSISTANCE27
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BENEFITS AND MEDICAL ASSISTANCE BENEFITS AUTHORIZED UNDER STATE1
LAW OR FOR A PAYMENT MADE UNDER ANY OTHER PUBLICLY FUNDED2
PROGRAM.3
(9) THE AMOUNT OF THE CREDIT ALLOWED UNDER THIS SECTION4
THAT EXCEEDS THE RESIDENT INDIVIDUAL 'S INCOME TAXES DUE IS5
REFUNDED TO THE INDIVIDUAL.6
(10) T HE DEPARTMENT IS AUTHORIZED AND ENCOURAGED TO7
DEVELOP A MEANS OF REFUNDING THE CREDITS ALLOWED BY THIS SECTION8
TO RESIDENT INDIVIDUALS WHO QUALIFY FOR THE CREDITS IN TWELVE9
EQUAL MONTHLY REFUNDS RATHER THAN ANNUALLY.10
(11) NOTWITHSTANDING SECTION 39-21-304 (4), THE CREDIT DOES11
NOT REPEAL AFTER A SPECIFIED PERIOD OF TAX YEARS.12
SECTION 4. In Colorado Revised Statutes, 39-22-304, add13
(2)(m), (2)(n), (2)(o), (2)(p), and (3)(u) as follows:14
39-22-304. Net income of corporation - legislative declaration15
- definitions - repeal.16
(2) There shall be added to federal taxable income:17
(m) FOR INCOME TAX YEARS COMMENCING ON OR AFTER JANUARY18
1, 2027, AN AMOUNT EQUAL TO THE FEDERAL DEDUCTION CLAIMED BY THE19
TAXPAYER FOR THE INCOME TAX YEAR FOR BUSINESS INTEREST PURSUANT20
TO SECTION 163 OF THE INTERNAL REVENUE CODE TO THE EXTENT THE21
AMOUNT CLAIMED EXCEEDS THE AMOUNT THE TAXPAYER WOULD HAVE22
BEEN ALLOWED TO CLAIM PURSUANT TO THE LIMITATION ON BUSINESS23
INTEREST SET FORTH IN SECTION 163 (j) OF THE INTERNAL REVENUE CODE24
WITHOUT REGARD TO ANY AMENDMENT BY PUB. L. 119-21;25
(n) FOR INCOME TAX YEARS COMMENCING ON OR AFTER JANUARY26
1, 2027, AN AMOUNT EQUAL TO THE FEDERAL DEDUCTION CLAIMED BY THE27
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TAXPAYER FOR THE INCOME TAX YEAR FOR QUALIFIED PROPERTY1
DEPRECIATION PURSUANT TO SECTION 168 (k) OF THE INTERNAL REVENUE2
CODE TO THE EXTENT THE AMOUNT CLAIMED EXCEEDS THE AMOUNT THE3
TAXPAYER WOULD HAVE BEEN ALLOWED TO CLAIM PURSUANT TO SECTION4
168 (k) OF THE INTERNAL REVENUE CODE WITHOUT REGARD TO ANY5
AMENDMENT BY PUB. L. 119-21; EXCEPT THAT , THE TAXPAYER MAY6
REDUCE THE AMOUNT OTHERWISE REQUIRED TO BE ADDED TO THE7
TAXPAYER'S FEDERAL TAXABLE INCOME PURSUANT TO THIS SUBSECTION8
(2)(n) BY THE AMOUNT OF QUALIFIED PROPERTY DEPRECIATION THE9
TAXPAYER WOULD HAVE BEEN ALLOWED TO CLAIM FOR THE STATE10
INCOME TAX YEAR WITH RESPECT TO THE SAME PROPERTY PURSUANT TO11
ANY SECTION OTHER THAN SECTION 168 (k) OF THE INTERNAL REVENUE12
CODE WITHOUT REGARD TO ANY AMENDMENT BY PUB. L. 119-21;13
(o) FOR INCOME TAX YEARS COMMENCING ON OR AFTER JANUARY14
1, 2027, AN AMOUNT EQUAL TO THE FEDERAL DEDUCTION CLAIMED BY THE15
TAXPAYER FOR THE INCOME TAX YEAR FOR QUALIFIED PRODUCTION16
PROPERTY DEPRECIATION PURSUANT TO SECTION 168 (n) OF THE INTERNAL17
REVENUE CODE; EXCEPT THAT, THE TAXPAYER MAY REDUCE THE AMOUNT18
OTHERWISE REQUIRED TO BE ADDED TO THE TAXPAYER 'S FEDERAL19
TAXABLE INCOME PURSUANT TO THIS SUBSECTION (2)(o) BY THE AMOUNT20
OF QUALIFIED PRODUCTION PROPERTY DEPRECIATION THE TAXPAYER21
WOULD HAVE BEEN ALLOWED TO CLAIM FOR THE STATE INCOME TAX YEAR22
WITH RESPECT TO THE SAME PROPERTY PURSUANT TO ANY SECTION OTHER23
THAN SECTION 168 (k) OF THE INTERNAL REVENUE CODE WITHOUT REGARD24
TO ANY AMENDMENT BY PUB. L. 119-21;25
(p) FOR INCOME TAX YEARS COMMENCING ON OR AFTER JANUARY26
1, 2027, AN AMOUNT EQUAL TO THE FEDERAL DEDUCTION CLAIMED BY THE27
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TAXPAYER FOR THE INCOME TAX YEAR FOR DOMESTIC RESEARCH AND1
EXPERIMENTAL EXPENDITURES PURSUANT TO SECTION 174A OF THE2
INTERNAL REVENUE CODE ; EXCEPT THAT, THE TAXPAYER MAY REDUCE3
THE AMOUNT OTHERWISE REQUIRED TO BE ADDED TO THE TAXPAYER 'S4
FEDERAL TAXABLE INCOME PURSUANT TO THIS SUBSECTION (2)(p) BY THE5
AMOUNT OF THE DEDUCTION THE TAXPAYER WOULD HAVE BEEN ALLOWED6
TO CLAIM FOR THE STATE INCOME TAX YEAR WITH RESPECT TO THE SAME7
RESEARCH AND EXPERIMENTAL EXPENDITURES PURSUANT TO SECTION 1748
OF THE INTERNAL REVENUE CODE WITHOUT REGARD TO ANY AMENDMENT9
BY PUB. L. 119-21.10
(3) There shall be subtracted from federal taxable income:11
(u) (I) F OR INCOME TAX YEARS COMMENCING ON OR AFTER12
JANUARY 1, 2028, A TAXPAYER REQUIRED TO MAKE AN ADDITION TO13
FEDERAL TAXABLE INCOME PURSUANT TO SUBSECTION (2)(m), (2)(n),14
(2)(o), OR (2)(p) OF THIS SECTION, IS ALLOWED TO APPLY THE FOLLOWING15
SUBTRACTIONS IN ACCORDANCE WITH THIS SUBSECTION (3)(u):16
(A) A N AMOUNT EQUAL TO ONE -FIFTH OF THE CUMULATIVE17
AMOUNT ADDED TO FEDERAL TAXABLE INCOME AS REQUIRED BY18
SUBSECTION (2)(m) OF THIS SECTION FOR EACH OF THE FIVE STATE INCOME19
TAX YEARS IMMEDIATELY FOLLOWING THE STATE INCOME TAX YEAR IN20
WHICH THE ADDITION WAS REQUIRED;21
(B) A N AMOUNT E QUAL TO ONE -TENTH OF THE CUMULATIVE22
AMOUNT ADDED TO FEDERAL TAXABLE INCOME AS REQUIRED BY23
SUBSECTION (2)(n) OF THIS SECTION FOR EACH OF THE TEN TAXABLE24
YEARS IMMEDIATELY FOLLOWING THE TAXABLE YEAR IN WHICH THE25
ADDITION WAS REQUIRED;26
(C) A N AMOUNT EQUAL TO ONE THIRTY -EIGHTH OF THE27
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CUMULATIVE AMOUNT ADDED TO FEDERAL TAXABLE INCOME AS REQUIRED1
BY SUBSECTION (2)(o) OF THIS SECTION FOR EACH OF THE THIRTY -EIGHT 2
STATE INCOME TAX YEARS IMMEDIATELY FOLLOWING THE STATE INCOME3
TAX YEAR IN WHICH THE ADDITION WAS REQUIRED; AND4
(D) A N AMOUNT EQUAL TO ONE -FOURTH OF THE CUMULATIVE5
AMOUNT ADDED TO FEDERAL T AXABLE INCOME AS REQUIRED BY6
SUBSECTION (2)(p) OF THIS SECTION FOR EACH OF THE FOUR STATE INCOME7
TAX YEARS IMMEDIATELY FOLLOWING THE STATE INCOME TAX YEAR IN8
WHICH THE ADDITION WAS REQUIRED.9
(II) T HE TOTAL AMOUNT OF EACH SUBTRACTION ALLOWED10
PURSUANT TO SUBSECTIONS (3)(u)(I), (3)(u)(II), (3)(u)(III), AND11
(3)(u)(IV) OF THIS SECTION SHALL NOT EXCEED THE CUMULATIVE AMOUNT12
ADDED TO FEDERAL TAXABLE INCOME PURS UANT TO EACH13
CORRESPONDING ADDITION REQUIRED BY SUBSECTIONS (2)(m), (2)(n),14
(2)(o), AND (2)(p) OF THIS SECTION.15
(III) T HE SUBTRACTIONS ALLOWED IN THIS SUBSECTION (3)(u)16
APPLY AFTER THE APPLICATION OF THE OTHER SUBTRACTIONS PROVIDED17
FOR IN THIS SUBSECTION (3), EXCEPT FOR THE SUBTRACTION ALLOWED18
PURSUANT TO SUBSECTION (3)(p) OF THIS SECTION. IF THE AMOUNT OF THE19
SUBTRACTIONS ALLOWED UNDER THIS SUBSECTION (3)(u) EXCEEDS A20
TAXPAYER'S FEDERAL TAXABLE INCOME AS CALCULATED PURSUANT TO21
THIS SECTION WITHOUT REGARD TO THE SUBTRACTION ALLOWED22
PURSUANT TO SUBSECTION (3)(p) OF THIS SECTION , THE AMOUNT NOT23
SUBTRACTED FROM THE TAXPAYER 'S FEDERAL TAXABLE INCOME24
PURSUANT TO THIS SECTION MAY BE CARRIED FORWARD AND USED AS A25
SUBTRACTION FROM THE TAXPAYER 'S FEDERAL TAXABLE INCOME AS26
CALCULATED PURSUANT TO THIS SECTION WITHOUT REGARD TO THE27
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SUBTRACTION ALLOWED PURSUANT TO SUBSECTION (3)(p) OF THIS1
SECTION IN SUBSEQUENT YEARS FOR A PERIOD NOT TO EXCEED TEN YEARS2
AND MUST BE APPLIED FIRST TO THE EARLIEST POSSIBLE INCOME TAX3
YEAR. ANY SUBTRACTION REMAINING AFTER THE PERIOD IS NOT4
REFUNDED OR CREDITED TO THE QUALIFIED TAXPAYER.5
SECTION 5. Act subject to petition - effective date. This act6
takes effect at 12:01 a.m. on the day following the expiration of the7
ninety-day period after final adjournment of the general assembly (August8
12, 2026, if adjournment sine die is on May 13, 2026); except that, if a9
referendum petition is filed pursuant to section 1 (3) of article V of the10
state constitution against this act or an item, section, or part of this act11
within such period, then the act, item, section, or part will not take effect12
unless approved by the people at the general election to be held in13
November 2026 and, in such case, will take effect on the date of the14
official declaration of the vote thereon by the governor.15
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