Colorado 2% Tax for Out of State Real Estate Sellers
Are you a second homeowner in Crested Butte, Colorado and an out-of-state owner? Did you know you are subject to a 2% Tax on the sale of your home?
It is the standard practice of Title Companies to choose to deduct 2% of the SALES PRICE of the real estate transaction for out-of-state owners. This frustrates and baffles me – because the tax is ONLY due on the NET PROCEEDS from the sale.
My correspondence to a Title Company on behalf of my Crested Butte Seller client:
“The out of state seller is required to pay 2% only on the gain of the sale of the property. I think it is not serving the public (our Seller clients) for Title Company to automatically deduct 2% of the Sales Price on the Seller Settlement Statement, because this assumes the Sales price is 100% “gain” or profit.
I would think it is pretty simple for Title Company to obtain the recorded purchase price of the property in most cases* and at least subtract this amount, plus closing costs and commissions on the transaction to come up with a more realistic number that is then multiplied by the 2%.
* yes I realize if a seller bought land and built a home there is no way to know what the effective basis is. And yes the seller may also have spent $ on remodel that they could also add to their basis – not suggesting you go down this path…
Per Instructions on the back of form DR1083 Information with Respect to a Conveyance of a Colorado Real Property Interest – https://www.colorado.gov/pacific/sites/default/files/DR1083.pdf
“Normally Colorado tax will be due on any transaction upon which gain will be recognized for federal income tax purposes. Gain will normally be recognized for federal income tax purposes any time the selling price of the property exceeds the total of the taxpayer`s adjusted basis in the property, plus the expenses incurred in the sale of the property. The taxpayer`s adjusted basis of the property will normally be the taxpayer`s total investment in the property, minus any depreciation thereon he has previously claimed for federal income tax purposes.”
DR 1083 (10/17/13), COLORADO DEPARTMENT OF REVENUE, Denver, CO 80261-0005, www. TaxColorado.com
The Response from the Title Company’s Legal Department:
“The withholding tax is made in anticipation of the Colorado income tax that will be due on the gain from the sale (quoting from the instructions on the form). It is essentially a prepayment of the tax and the seller/taxpayer must then submit a tax return to claim any refund. The procedure is very similar to the FIRPTA withholding tax which is also a prepayment on any federal income tax which may be due.”
I am not a CPA nor an Attorney – but I can do math
I am not a CPA nor an Attorney, but I can do math – and the Sales Price will never be 100% Gain or Net Proceeds on the Sale of a property in Colorado unless the basis is $0.00.
So it would be my suggestion that if you are a seller and reside out of the state of Colorado, then you might want to consider instructing the Title Company that you will file with the State of Colorado yourselves.
Specifically – that you elect to sign the Affidavit DR 1083 – and will be checking box “e” “Affirmation of no tax reasonably estimated to be due to no gain on sale signed” (Otherwise the Title Company will withhold and disburse 2% of the SALES PRICE (not the gain) to the Colorado Dept. of Revenue… and then you will have to go file with the State of Colorado and ask for YOUR money back (and months later you may get it back).
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