The 'Split-Rate' Tax: Why Colorado Might Start Taxing Your Land More Than Your House

What This Bill Actually Does

Right now, your local property tax is based on the total assessed value of your real estate—the land itself plus whatever is built on it—taxed at a single, flat mill levy rate. HB26-1119 changes the game by introducing split-rate property taxation. Starting in the 2027 tax year, this bill allows local governments and special districts to legally split their property tax levies into two different rates: a higher rate for the dirt, and a lower rate for the improvements (the house, the apartment building, or the retail space).

The legislative declaration reads like an economics textbook, and it doesn't hide the bill's intent. Colorado has an estimated housing deficit of 106,000 units, and land costs have skyrocketed from 31% of home values in 2012 to 58% in 2024. By creating what the bill calls a partial building exemption, the state wants to make it financially painful to hoard vacant land in desirable areas, while simultaneously making it cheaper to build high-density, infill housing. The bill explicitly mandates that the mill levy rate for improvements must be less than or equal to the rate for the land. The sponsors point to cities like Harrisburg and Pittsburgh, Pennsylvania, which used split-rate taxes to successfully combat urban blight and spur construction booms.

However, there are strict guardrails. This isn't a blanket policy for the whole state; it's an opt-in authority for local municipalities. Furthermore, the bill explicitly protects several major industries from being caught in the crossfire. Local governments are prohibited from applying split rates to agricultural property, land used for renewable energy production, properties under a perpetual conservation easement, producing mines, oil and gas leaseholds, and state-assessed properties. For everyone else, sections 3 through 5 of the bill simply mandate that these split rates be clearly broken down and published on your county tax certifications so you know exactly what you're paying for the land versus the building.

What It Means for You

If you are a typical Colorado homeowner, this bill could actually work in your favor—depending on what your local city council decides to do. Because the bulk of a standard suburban property's value is usually tied up in the house (the improvement) rather than the land itself, a split-rate system generally shifts the overall tax burden away from typical homeowners and pushes it onto people who own vacant, highly-valued land. If your city adopts this, you might see your overall property tax bill stabilize or drop, as the lower rate on your physical house offsets the higher rate on your yard.

But if you are sitting on an empty double lot in Denver, a vacant commercial parcel, or a severely rundown property waiting for the right time to sell, your holding costs are about to go up. The government is essentially using the tax code to force your hand: build something productive on the land, sell it to someone who will, or pay a hefty premium to keep it empty. It's important to remember that this bill doesn't force your city to change its taxes; it just gives them the authority to do so starting in the 2027 property tax year. The big unknown is exactly how wide the gap between the two rates will be in your specific municipality.

Here is what you should do to prepare:

• Check your current tax assessment: Pull up your latest county property tax notice. Look at how your assessor currently splits your property's value between 'Land' and 'Improvements.' This ratio will tell you if you're likely to win or lose under a split-rate system.
• Contact your local city council: Since this is entirely an opt-in policy for local governments, your local mayor and council members are the ones who will ultimately pull the trigger. Tell them where you stand on split-rate taxes before they start drafting local ordinances.

What It Means for Your Business

General contractors, real estate developers, and commercial investors—this is the most important policy shift of the year for your industry. HB26-1119 is designed specifically to manipulate the real estate development market by altering the math on your pro-formas. If you build multi-family housing or commercial infill, this bill acts as a long-term tax incentive. By lowering the mill levy on improvements, your post-construction property tax liabilities will drop, making it significantly easier to finance new projects and keep rents competitive.

Conversely, if your business model relies heavily on land speculation—buying up parcels in growing areas and sitting on them for a decade—this bill actively targets your profit margins. Your holding costs will rise as the tax rate on unimproved land increases. You should also pay close attention to the entities allowed to use this tool: it's not just cities and counties. Downtown Development Authorities (DDAs), Urban Renewal Authorities (URAs), and Metropolitan Districts are all granted the power to implement split-rate taxes, meaning you could see highly localized tax pockets designed specifically to eradicate blight or force development in specific business districts.

If you operate in the agricultural, mining, or renewable energy sectors, you can breathe a sigh of relief. Your properties are explicitly exempted from this experiment and will continue to be taxed under the traditional, unified mill levy system.

Here is what your business needs to do THIS WEEK:

• Audit your real estate portfolio: Identify your completely undeveloped or under-developed parcels versus your heavily improved properties. Calculate your exposure to higher land taxes.
• Adjust your financial models: If you are planning builds for 2027 and beyond, start running alternate tax scenarios with a lower improvement mill levy to see if previously dead development projects might actually pencil out under the new rules.
• Monitor your local Metro Districts: Find out if the special districts where your properties are located are discussing split-rate adoption, as they often move faster than city governments.

Follow the Money

Because HB26-1119 is an 'opt-in' measure for local governments, it doesn't carry a massive, immediate price tag for the state budget. The state's fiscal note will likely show minimal administrative costs, mostly requiring the Division of Local Government and the Department of Education to update their tax certification software to accommodate two mill levy lines instead of one. The real financial impact happens at the municipal level, but it is explicitly designed to be revenue-neutral in the aggregate.

Section 3 of the bill clearly states that cities and counties must still adhere to TABOR (Article X, Section 20) and all other statutory property tax revenue limits. This means a local government cannot use a split-rate tax as a sneaky way to collect more total money than they are legally allowed. If a city lowers the tax rate on buildings, they have to raise the rate on land just enough to make up the difference, keeping their overall budget flat. It's a localized shell game that shifts who pays the taxes—from developers and homeowners to speculators—rather than changing how much total tax is collected by the government.

Where This Bill Stands

HB26-1119 was introduced in the House on February 4, 2026, and has been assigned to the House Finance Committee. Because it touches the absolute third rail of Colorado politics—property taxes—you can expect a heavily lobbied, standing-room-only committee hearing. Real estate developer groups and smart-growth advocates will likely champion the bill, while owners of vacant commercial land and certain business associations might fight it aggressively.

Its trajectory is cautiously optimistic but far from guaranteed. The legislature is desperate for housing supply solutions that don't require spending state money, and 'split-rate' taxation is gaining serious bipartisan traction among economists nationally. If the bill survives committee and passes both chambers, it will officially take effect on August 12, 2026, giving local governments the green light to start designing split-rate tax structures for the 2027 property tax year.