Why is that rude? Seems like a factual statement to me unless you’re not dressed up.
You could say “thank you” or “thanks, I love to dress up for the holidays” or “you look nice too” or “Oh, StateU? How’s the team this year?” or “I love an excuse to have fun and put on something nice.”
I don’t dress up often but when I do if someone says something like “you’re so dressed up” or “you clean up nice” I just take it as a compliment.