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Not Living in Colorado will Cost you 2% More

Colorado 2% withholding

 
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

Colorado 2% Withholding when you sell

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.

Click for additional seller information.

Posted in: Seller Tips Tagged: Non-resident, Out of State, Taxes

Comments

  1. David l Chorney says

    February 18, 2023 at 8:22 pm

    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.

    Reply
    • Meredith Adams says

      February 19, 2023 at 10:03 am

      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

      Nonresident withholding and prepayments
      Withholding requirements, or other tax payment requirements, apply specifically to certain types of income received or recognized by nonresidents, namely:

      nonresident beneficiary withholding (DR 0104BEP)
      nonresident real estate withholding (DR 1079); and
      nonresident partner or shareholder payments (DR 0108).
      These types of nonresident withholding and prepayments may be claimed on the applicable line of the Colorado Individual Income Tax Return (DR 0104) that references forms DR 0104BEP, DR 0108, and DR 1079, and not on the line designated for withholding from Forms W-2 or 1099. Nonresidents may claim a refund if the withholding or prepayment exceeds the amount of tax due.

      Reply
  2. Andrew Doniec says

    February 12, 2023 at 11:40 pm

    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!

    Reply
    • Meredith Adams says

      February 13, 2023 at 7:26 am

      I am not a CPA or tax person so I don’t know where/how you report paying it. Sorry.

      Reply
  3. walter r says

    January 26, 2023 at 6:46 am

    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?

    Reply
    • Meredith Adams says

      January 29, 2023 at 8:41 am

      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%.

      Reply
  4. Todd Figg says

    November 21, 2022 at 7:40 am

    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@

    Reply
    • Meredith Adams says

      November 21, 2022 at 8:01 am

      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.

      Reply
  5. Larry Green says

    July 25, 2021 at 2:11 pm

    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?

    Reply
    • Meredith Adams says

      July 25, 2021 at 7:33 pm

      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.

      Reply
      • Meredith Adams says

        July 25, 2021 at 8:41 pm

        I should add that each situation is different and you should always check with your tax professional. I am not a tax professional.

        Reply
  6. Dave says

    July 24, 2021 at 8:04 pm

    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

    Reply
    • Meredith Adams says

      July 25, 2021 at 7:30 pm

      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.

      Reply
  7. Carmelita says

    December 31, 2020 at 8:40 pm

    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.

    Reply
    • Meredith Adams says

      December 31, 2020 at 9:15 pm

      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.

      Reply

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Mountain Living Real Estate, a.k.a. The Mountain Living Team, is a family owned, second generation, real estate company that has been helping buyers and sellers in Summit County since the early 90’s.  Mountain Living Real Estate is committed to going above and beyond to ensure their clients have the most amazing real estate experience possible.  Jason & Meredith take a personal approach to educate their clients, empowering them to make high quality decisions no matter the situation.  They take exceptional care throughout the sales process and beyond; striving to make each client’s path in Summit County one filled with fun, excitement & great memories.

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Jason & Meredith Adams
Mountain Living Real Estate

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