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HB 25B-1001

Qualified Business Income Deduction Add-Back

2025 First Extraordinary Session Introduced by Jennifer Bacon and 38 co-sponsors

Requires permanent Colorado add-back of the federal QBI deduction for high-income non-corporate filers (AGI > $500k single; > $1M MFJ) starting with 2026.

Governor Signed
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Bill Summary · HB 25B-1001

Bill Summary — HB 25B-1001

Title: Qualified Business Income Deduction Add‑Back
Status: Governor signed (Aug 28, 2025)
Introduced: Aug 21, 2025
Statute amended: Colo. Rev. Stat. § 39‑22‑104 (3)(o)

Main purpose

To make permanent (beginning with tax year 2026) Colorado’s requirement that certain higher‑income taxpayers “add back” the federal qualified business income (QBI) deduction (IRC §199A) when calculating Colorado taxable income.

Key provisions

  • Continues indefinitely (starting with tax year 2026) the existing state requirement that an amount equal to the federal QBI deduction be added to federal taxable income for Colorado tax purposes for:
    • Single filers with adjusted gross income (AGI) greater than $500,000; and
    • Married filing jointly filers with AGI greater than $1,000,000.
  • Retains the existing exclusion: the add‑back does not apply to taxpayers required to file Schedule F (profit or loss from farming) for the year in which they claim the §199A deduction.
  • Legislative declaration states the continuation is a continuation of existing policy and is not a “tax policy change” under Colorado’s TABOR provisions.

Who is affected

  • Affected: higher‑income non‑corporate taxpayers (sole proprietors, partners, S‑corporation shareholders, etc.) whose federal QBI deduction is available and whose AGI exceeds the thresholds above.
  • Not affected: taxpayers below the AGI thresholds and Schedule F filers (farmers) claiming §199A for that tax year.

Fiscal impact (Legislative Council Staff / JBC analyses)

  • State revenue increases (net of current law) estimated as:
    • FY 2025‑26 (half‑year): $45.9 million total
    • FY 2026‑27: $95.5 million total
    • FY 2027‑28: $101.6 million total
  • Fund breakdown (FY 2026‑27 examples):
    • General Fund: $84.7 million
    • State Education Fund (SEF): $7.2 million
    • SEF Kids Matter Account: $1.4 million (starts FY 2026‑27)
    • State Affordable Housing Fund: $2.2 million
  • TABOR: The bill increases required TABOR refunds by $86.1 million in FY 2026‑27 (refunds are paid from the General Fund). No appropriation required; no ongoing state spending impact is identified.

Background context

  • The federal QBI deduction (IRC §199A) generally allows non‑corporate businesses to deduct up to 20% of qualified business income, subject to phase‑outs and rules. Although §199A was scheduled to expire after 2025, H.R. 1 (signed July 4, 2025) extended the federal deduction indefinitely and changed thresholds and other rules — which affects the base on which the state add‑back operates.

Timeline and procedural history

  • Introduced in House: 08/21/2025; passed both chambers (no amendments) 08/21–08/25/2025; sent to Governor 08/26/2025; signed by Governor 08/28/2025. The act takes effect upon the Governor’s signature (immediate effect for purposes stated in the bill).

Sponsors

Primary sponsors: Rep. Emily Sirota (House); Sen. Nick Hinrichsen and Sen. Lisa Cutter (Senate). Multiple cosponsors from both chambers.

Compiled from official sources — confirm details with the bill’s official record.

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