How to File Colorado DR 0108 as a Part-Time Resident

Filing taxes as a part-year resident in Colorado requires additional steps to ensure income is properly allocated between states. Form DR 0108 determines the portion of income subject to Colorado tax for those who moved into or out of the state during the year. Completing this form correctly helps avoid overpaying taxes or facing penalties.

Who Needs to File

Individuals who lived in Colorado for part of the year must file Form DR 0108 if they earned income in both Colorado and another state. This includes those who moved into or out of Colorado or maintained residency elsewhere while earning income in the state. A part-year resident is someone who either established or abandoned residency during the tax year.

Residency is based on factors such as a permanent home, voter registration, driver’s license, and employment location. Even a short stay in Colorado may qualify if steps were taken to establish domicile, such as leasing an apartment or enrolling children in school.

Nonresidents who earned income from Colorado sources but never established residency do not file DR 0108. Instead, they report only their Colorado-sourced income on Form 104PN. This includes remote workers employed by Colorado-based companies, individuals with rental properties in the state, or those receiving income from a Colorado business partnership.

Income Allocation

Part-year residents must determine how much of their income is taxable in Colorado. The state taxes only income earned while living in Colorado.

The process starts with identifying total federal taxable income, including wages, business profits, and investment returns. Since Colorado begins with federal adjusted gross income (AGI), taxpayers must determine what portion was earned during their residency.

Accurate allocation requires detailed records of when and where income was received. Pay stubs, employer payroll records, and state-specific tax withholding documents help verify earnings. Self-employed individuals should track invoices, client payments, and business activities conducted in Colorado.

Components of Income Allocation

Different types of income must be allocated separately on Form DR 0108.

Wages

Salaries, hourly pay, bonuses, and commissions must be allocated based on the period they were earned while residing in Colorado. If an individual worked for the same employer before and after moving, pay stubs or employer-provided wage statements can determine the portion of earnings attributable to their time in the state.

For salaried employees, a simple method is to divide the total annual salary by 365 and multiply by the number of days spent as a Colorado resident. For example, if someone earned $80,000 annually and lived in Colorado for 120 days, their Colorado taxable wages would be:

(80,000 ÷ 365) × 120 = 26,301.37

Hourly employees should allocate wages based on actual hours worked in Colorado. Remote workers employed by a Colorado-based company but living elsewhere are generally not subject to Colorado tax unless the work was physically performed in the state.

Investment Earnings

Interest, dividends, and capital gains are allocated based on residency at the time the income was received. Unlike wages, which are earned over time, investment income is recognized on the date of payment or sale.

For example, if a taxpayer received a $500 dividend while living in Colorado, that amount is fully taxable in the state. However, if they sold a stock for a $5,000 capital gain after moving out of Colorado, that gain is not subject to Colorado tax. Mutual fund distributions and bond interest follow the same principle—only amounts received during the residency period are taxable.

Capital gains from Colorado-based investments may qualify for a subtraction under Colorado law if the asset was held for at least five years. Brokerage statements and transaction dates help ensure proper allocation.

Other Income

Self-employment earnings, rental income, and retirement distributions require separate considerations. Business owners must allocate net profits based on where services were performed. If a freelancer moved to Colorado mid-year, they should track client payments and expenses to determine the portion of income earned while residing in the state.

Rental income from Colorado properties is always taxable in the state, regardless of the owner’s residency. Conversely, rental income from properties in another state is not subject to Colorado tax, even if the owner moved to Colorado during the year. Depreciation, property management fees, and other deductions should be allocated accordingly.

Retirement income, including pensions and IRA withdrawals, is generally taxed based on residency at the time of distribution. However, Social Security benefits are not taxable in Colorado, and taxpayers over 55 may qualify for a subtraction on certain retirement income under Colorado law. Those who received lump-sum distributions should check the distribution date to determine whether it falls within their Colorado residency period.

Steps to Complete DR 0108

Before filling out Form DR 0108, taxpayers must complete their federal tax return, as Colorado starts with federal AGI for state tax calculations.

The form requires a breakdown of modifications to taxable income. Certain deductions, such as contributions to a Colorado 529 college savings plan, may reduce taxable income, while additions like non-Colorado municipal bond interest could increase it. These modifications apply only to income earned during the residency period.

After adjustments, taxpayers calculate their Colorado tax liability by determining the total state tax owed as if they were full-year residents and then applying a proration percentage based on the ratio of Colorado-sourced income to total income.

Claiming Credits

Part-year residents may be eligible for Colorado tax credits, but these must be adjusted based on their residency period. Some credits are only available to full-year residents, while others must be prorated.

The credit for taxes paid to another state is particularly relevant for those who earned income in multiple jurisdictions. Colorado allows a credit to prevent double taxation, but it only applies to income taxed by both states. To claim this, taxpayers must complete Form DR 0104CR and provide documentation, such as a copy of the other state’s tax return or tax payment receipts.

Other credits, such as the Child Care Contribution Credit, must be prorated based on the portion of the year spent in Colorado. Refundable credits like the Colorado Earned Income Tax Credit (EITC) are adjusted based on the percentage of federal EITC eligibility that corresponds to Colorado residency. Keeping records of eligible expenses and contributions ensures accurate claims.

Documentation Requirements

Maintaining thorough documentation is necessary when filing Form DR 0108, as the Colorado Department of Revenue may request proof of income allocation and residency status.

For wage earners, pay stubs and W-2 forms showing state-specific withholdings verify income earned during the Colorado residency period. If an employer did not withhold Colorado taxes correctly, taxpayers may need to provide additional proof, such as employment contracts or correspondence confirming work location. Self-employed individuals should retain invoices, client payment records, and business expense receipts.

Investment and rental income require brokerage statements, property management reports, and bank records to substantiate the timing of earnings. Taxpayers claiming credits for taxes paid to another state must provide copies of the other state’s tax return and proof of payment. Residency documentation, such as lease agreements, utility bills, or vehicle registration records, can help confirm the exact dates of Colorado residency. Keeping these records organized ensures a smoother filing process and reduces the likelihood of disputes with tax authorities.