What is the Colorado 2% Withholding Real Estate Tax? Who does it apply to?
Oftentimes, in Summit County, Colorado, we have home owners that live outside of the state of Colorado. They may own property in Breckenridge, Keystone, Frisco, Copper Mountain, Silverthorne or Dillon, but their permanent residence is out of state. When they go to sell their home, condo or real estate, they may be subject to the 2% Withholding tax. Information below is provided by Land Title and is subject to errors and revisions.
In general, sales of Colorado real property valued at more than $100,000 and made by non-residents of Colorado, are subject to a withholding tax in anticipation of any Colorado income tax that could be due on the gain of the sale.
Any sale that shows a non-Colorado address for the transferor may be subject to this withholding.
This law affects non-Colorado residents or those parties moving out-of-state and not purchasing another primary residence.
The amount, if withheld, shall be the lesser of two percent of the sales price of the property or the net proceeds.
However there are exceptions to this 2% withholding. Withholding shall not be made when:
1. The selling price of the property is not more than $100,000;
2. The transferor is an individual, estate, trust, or partner and both the Form 1099-S and the authorization for disbursement of funds show a Colorado address for the transferor;
3. The transferee is a bank or corporate beneficiary under a mortgage or beneficiary under a deed of trust and the Colorado real property is acquired in judicial or nonjudicial foreclosure or by deed of lieu of foreclosure; or
4. The transferor is a corporation incorporated under Colorado law or currently registered with the Secretary of State's office as authorized to transact business in Colorado;
5. The title insurance company or the person providing the closing and settlement services, in good faith, relies upon a written affirmation executed by the transferor, certifying under penalty of perjury one of the following:
- a) that the transferor, if an individual, estate, trust or partner is a resident of Colorado;
b) that the transferor, if a corporation, has a permanent place of business in Colorado;
- c) that the Colorado real estate property being conveyed is the principal residence of the transferor which could qualify for the rollover of gain provisions of section 1034 of the internal revenue code;
- d) that the transferor, if a partnership files an annual federal partnership return of income under section 6031 (a) of the internal revenue code;
- e) that the transferor will not owe Colorado income tax reasonably estimated to be due from the inclusion of the actual gain required to be recognized on the transaction in the gross income of the transferor;
- f) no net proceeds, there is no corresponding paragraph to sign. The sellers settlement statement is sent out showing no proceeds to the seller.
If the out-of-state resident can agree to an affirmation, they should sign on that corresponding paragraph on page 2 of the form.
If this is a short sale or the seller is not receiving any proceeds, then a settlement statement will be attached on page 2 of the form.
If this is a short sale or the seller is not receiving any proceeds, then a settlement will be attached to the DR1083 to show "No Net Proceeds".
By law, all completed forms are to be sent in to the Colorado Department of Revenue within 30 days of the closing date.
If you know you have an out-of-state seller, it is important to contact your Closer so that the form and instructions for completing the form can be sent out well in advance of the closing. The seller can then consult their accountants if they have any questions as to the collection of the 2% withholding.
A complete copy of the Instructions for completing the Colorado Form DR1083 is available upon request from your Land Title Sales Representative or it can be downloaded on ltgc.com under the forms page.
Disclaimer: This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal or accounting advice or other expert assistance is required, the services of a competent professional should be sought.
© Copyright, 2014, by Land Title Guarantee Company
In addition, sellers who live out of the country are subject to an even higher withholding tax, which was recently increased to 15%.
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