The state of Colorado charges non-residents 2% of the sale price when they sell their vacation home or investment property. Believe it or not, it’s not a penalty for those unlucky people that don’t live in Colorado, it’s actually an incentive for them to file a Colorado tax return. If you are a non-resident you can avoid payment of the Colorado 2% withholding but only for limited reasons.
Colorado 2% Tax
No matter where you live, the state of Colorado expects you to pay state taxes on any money you make here. That can be a hard task for the state to enforce but when it comes to property they have come up with a solution. If you don’t live in Colorado and sell your Colorado property, the company handling the closing collects 2% of the sales price for the state of Colorado. 2% withholding can be a significant amount of money and Colorado knows it. The money they collect needs to be enough money to motivate the seller to file a Colorado tax return. After filing a tax return, if 2% was too much to collect, the excess funds will be refunded.
Reasons to not collect tax
Taxes aren’t always due when a property sells. For example, if there is no gain, no taxes are due. The state knows that and does give you a limited choice of reasons why the 2% should not be collected. If one of those reasons fits your situation you don’t have to have it withheld.
No surprises
Typically the additional Colorado 2% withholding is not a big deal to out of state sellers. They know it will all work out come tax time. However, when that 2% fee is a surprise, it can wind up being a big deal.
Not tax advice
We are real estate agents and not tax accountants. This information is general information about Colorado’s 2% withholding. It is not tax advice. We do not give tax advice.
I live in Nebraska and have a property listed in Colorado for sale, my question is this, if I establish residency back in Colorado prior to closing, can I avoid the 2% tax?
I don’t know if you have to live in the state for a certain amount of time for you to be considered a resident to waive the 2% tax. Generally you need to register your cars in the state and change your voter registration to Colorado at a minimum.
I suppose, if you are willing to sign the affirmation that you are a Colorado resident so no tax is due, that would be sufficient to avoid the tax at the time of sale. You would just need to be able to support that affirmation if you are ever audited.
Keep in mind that I am not a CPA and this is not tax advice.
We are thinking of selling here in CO and moving to another state. Will there be that same pound of flesh to move out state?
If the Colorado home you are selling was your primary residence there should be no 2% tax even if you move out of state. Please keep in mind that this is not financial or tax advice and I am a real estate agent, not a tax/financial adviser.
I sold a house last year that was a rental and got hit for $9740 with the 2# sales tax. How do I file to get that back. Turbo tax will not allow it to be put in the Colorado return as I had no income in Colorado in 2022. just the sale of the house. Any help. it says something about using the DR0127 form.
If you sold a Colorado home, that would be Colorado income, which should require a Colorado return. I don’t know how Turbo Tax works so cannot help you there. You might try Turbo Tax support or talk to a CPA. This is from Colorado’s tax website, https://tax.colorado.gov/income-tax-topics-part-year-residents-nonresidents
Hi, sold my CO home last August and got stuck with that 2% withholding tax.
Question: Where do I enter that 2% tax withheld on my Federal Tax return? Reason I’m asking is Turbo Tax flags it on my CO non-resident tax return because it wasn’t entered on my Federal return. I’m thinking it doesn’t have to be entered on my Fed return, does it? Thanks!
I am not a CPA or tax person so I don’t know where/how you report paying it. Sorry.
what if I am going to be a full time resident this year – selling property now to use proceeds for my new home.. how is the 2% tax handled then?
You would need to talk to your CPA for advice but I think if you are selling a part time, Colorado home to concurrently buy a full time, Colorado home, I think you would be considered a resident and they would not collect the 2%.
I bought a Colorado house for $219,000 about 10 years ago. I am selling at $535 000.
Do I pay taxes on the gain?
Do I pay takes on the $535,000?
DO I pay taxes on the $535,000 less commissions and closing costs?
Thanks@
The title company will withhold 2% of the sale price (2% of $535k in your case) at Closing and send it to the state of Colorado. You will need to file a Colorado tax return to settle up with the state. Your actual Colorado tax due will be based on your total income for the year. You will get a refund from the state if the amount withheld is more than the amount due. Please keep in mind that we are not CPAs so this is just general information and is not tax advice.
If I buy another vacation home in Colorado do I get any of the 2% tax refunded. Another question do I pay the 2% on the sales price or the capital gain?
You pay 2% on the sale price. When you file your Colorado tax return, Colorado will settle up with you, giving you a refund if you are due it or collect more taxes if the 2% withholding wasn’t enough. Unless you do a 1031 Exchange and defer the taxes, you do not get a break on the 2% Colorado withholds, even if you buy another Colorado property.
I should add that each situation is different and you should always check with your tax professional. I am not a tax professional.
I live in Michigan and have had a vacation home in Colorado for over 30 years. My question is if and when I sell my home in Colorado is the 2% out of state withholding in addition to paying the states 4.63% tax on the sale, or is it applied toward the 4.63% states tax when I file a Colorado state tax return next year? The home sale would be around $400K and Capital Gains profit of roughly $300K.
Thanks
The title company will withhold 2% of the sale price at closing. It is put toward your state tax bill. When you file a Colorado return they will settle up with you. If you paid too much, you will get a refund if it was too little, a bill. So yes, it goes towards your state tax. It’s not an additional tax.
Keep in mind that I am not a tax professional or a CPA and this is not tax advice.
I am a Florida resident and have a second home in Aurora, CO that I am selling. I’m not sure about all the taxes, capital gains that I will have to pay. I lived there for 6 months in 2017 and 2018. Should I get tax help in Florida or Colorado.
Your Florida CPA should know Colorado’s rules for out of state filers. If you are unsure you can always check with a Colorado CPA. If you are not a Colorado resident you will almost certainly have to pay the 2% withholding. Capital gains rules seem to be always changing but I think the Aurora home would need to be your primary residence for a minimum of 2 of the last 5 years to get any type of relief from the capital gains tax. I am not a tax advisor so be sure and consult a CPA to be sure.