Millions in Tax Breaks Are Coming for Housing Near Transit Lines

What This Bill Actually Does

Colorado has spent billions of dollars on public transit over the past few decades (think of RTD's FasTracks system), but ridership still lags behind peer states. Why? Because most of our rail stations and bus corridors simply don't have enough housing nearby to support frequent use, and the pedestrian infrastructure to get to those stations is often lacking or unsafe. HB26-1065 tackles this disconnect by creating the Transit Investment Area Act. Starting in January 2027, local governments and transit agencies can team up and apply to the state to designate specific geographic zones around transit stations for massive infrastructure and housing upgrades.

The magic here is how these upgrades are paid for: Tax Increment Financing (TIF) utilizing state sales tax. Let's say a commercial neighborhood around a light rail station currently generates $1 million a year in state sales tax. The state will set a baseline, keeping that $1 million (plus expected normal economic growth and a 20% buffer to account for online sales). But if the city builds up the area and it suddenly generates $5 million a year, the local Transit Investment Authority gets to keep that extra $4 million. They can use that cash flow to pay off bonds for eligible improvements—things like new roads, sidewalks, bike lanes, public parking, land acquisition, and even surveying and engineering costs—for up to 30 years.

To sweeten the pot for private developers, the bill also creates the Colorado Affordable Housing in Transit Investment Zones Tax Credit. The state will hand out $50 million in tax credits every year from 2027 to 2033 (totaling $350 million) specifically for low- and middle-income housing built inside these zones. But there are strict guardrails: The state's Economic Development Commission will only approve a maximum of 6 total transit investment projects statewide, and they are capping the total diverted sales tax at $75 million per year across all active projects.

What It Means for You

If you live in or near a city with public transit, this bill could drastically change your neighborhood's landscape over the next decade. The legislative goal is to create highly walkable hubs around rail and bus lines. You could see empty lots, strip malls, or industrial spaces near transit stations turn into dense apartment buildings, coffee shops, dedicated bike paths, and better-lit crosswalks. The upside is a much better commuting experience, safer streets for pedestrians, and a boost in local housing inventory. The downside? You will have to live through the construction headaches, and there is a real risk of localized gentrification as these upgraded transit hubs become highly desirable places to live.

From a taxpayer perspective, it is important to know that your local city or county sales tax rate is not going up because of this bill. Instead, the state government is voluntarily giving up a chunk of its future sales tax growth to fund your local infrastructure. However, because the state is diverting up to $75 million a year (plus $50 million in tax credits) away from the state's General Fund, that means there is less money available for statewide programs, schools, or TABOR refunds. The nonpartisan fiscal note predicts a $5.1 million hit to the TABOR refund pool by 2027-2028, and that number scales up significantly as more projects are completed.

Here is what you should do next:

• Check your local transit plans: Find out if your city council or county commissioners are eyeing a nearby light rail, commuter rail, or bus rapid transit station for one of these 6 coveted project spots.
• Weigh in early: This program is completely opt-in for local governments. If you want a walkable transit hub—or if you want to protect your neighborhood from high-density development—contact your local elected officials now. They are the ones who will be applying to the state for these zones starting in early 2027.

What It Means for Your Business

If you are in real estate development, commercial construction, or civil engineering, this bill is a massive neon sign pointing to your next pipeline of work. The creation of Transit Investment Authorities means local governments will eventually be flush with bond money backed by state sales tax. They will need private firms to design and build out the eligible improvements: roads, landscaping, lighting, structured parking, and transit facilities. The bill explicitly allows funds to be used for professional services like architecture, construction engineering, legal services, and accounting. Furthermore, the $350 million in Affordable Housing Tax Credits allocated through the Colorado Housing and Finance Authority (CHFA) means residential developers have a major new capital stack tool to make multi-family projects pencil out inside these designated zones.

If you own a retail store or restaurant, securing a footprint inside one of these future Transit and Housing Investment Zones could be incredibly lucrative. The entire financial model of this bill relies on increasing foot traffic and retail sales to generate that tax increment. The state is literally betting millions of dollars that these specific areas will become booming commercial hubs. However, if you are currently leasing space near an underutilized transit station, be prepared for property values (and commercial rent) to spike as developers buy up land to utilize the new tax credits.

Here is what business owners should do this week:

• Identify the targets: Look at the major transit corridors in your area (like RTD's rail lines or planned bus rapid transit routes) and start mapping out adjacent parcels that might fit the state's criteria for a transit hub.
• Call your land use attorney: The rules for securing the new CHFA tax credits won't be written overnight, but you need to understand how your future projects can qualify for the upcoming 2027 allocations.
• Get in front of municipal planners: Cities can only apply for these zones if the proposed projects are already part of an existing 'local planning process.' Get involved in your local government's comprehensive plan updates right now so your projects are grandfathered into their eventual state applications.

Follow the Money

The financial mechanics of this bill are massive and will fundamentally shift how some tax dollars are distributed in Colorado. According to the nonpartisan fiscal note, HB26-1065 will reduce state revenue by up to $124.2 million annually by the time it is fully implemented in 2033. That breaks down to a maximum of $75 million per year in diverted state sales tax going straight to local transit authorities, plus about $49.4 million per year in claimed income tax credits for affordable housing developers.

To run this complex program, the Office of Economic Development and International Trade (OEDIT) and the Department of Revenue (DOR) will need an extra $400,000 to $565,000 a year for staff and third-party financial analysts. This overhead will be funded largely by application fees charged to the local governments, which can cost a city up to $40,000 per application. Most importantly for the average Coloradan, because the state is capturing less revenue overall, the amount of money available for TABOR refunds will shrink—dropping by an estimated $5.1 million in FY 2027-28 and climbing past $100 million in the out years as all 6 projects come online.

Where This Bill Stands

HB26-1065 was introduced in the House on January 21, 2026, and has been assigned to the House Finance Committee. With heavy-hitting sponsors including Rep. Julie McCluskie and Sen. Dylan Roberts, this bill has serious political muscle and leadership backing behind it.

Because of the massive fiscal impact—diverting hundreds of millions of dollars away from the state over the next decade—this bill will face intense scrutiny from budget hawks and the Joint Budget Committee. It has to survive the Finance Committee first to iron out the tax increment mechanics, but the real hurdle will be the Appropriations Committee. There, lawmakers will have to decide if giving up this much future state revenue is worth the localized housing and transit boom. Keep an eye on the legislative calendar over the next few weeks for its first committee hearing.