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Just like other states, Colorado withholding is simply an estimate of the tax due on the gain from the sale. Generally speaking, gain occurs when the selling price of the property exceeds the total of the taxpayer's adjusted basis in the property, plus expenses incurred at the time the property is sold.

The adjusted basis will normally be the taxpayer's total investment in the property, minus any depreciation previously claimed for tax purposes. The transferor claims credit for the withholding payment on their Colorado income tax return. 

Withholding is not required when: 

  • The seller is an individual, estate, or trust and will remain in Colorado after the sale; or
  • A bank or corporate beneficiary acquired the property in judicial or non-judicial foreclosure or by deed in lieu of foreclosure; or
  • The seller is a governmental agency; or
  • The seller is a Colorado domestic corporation, if it is qualified by law to transact business in Colorado, or if it maintains and staffs a permanent office in Colorado; or
  • The seller certifies under penalty of perjury by providing a written affirmation to the title insurance company one of the following:
    • The 1099-S shows a non-Colorado address but the individual, estate or trust affirms Colorado residency at the time of sale, or
    • A corporation or partnership selling signs the affirmation of permanent place of business within Colorado, or
    • Individual sellers sign the affirmation stating the property was his/her principal residence immediately prior to the transfer, or
    • The seller affirms no Colorado income tax will be due on the sale, or
    • There will be no net proceeds due to the seller at closing, or
    • The seller is a partnership, required to file an annual return of income for federal income tax purposes. 

    If withholding is due at closing, the title insurance company is required to remit the withholding and applicable forms to the Colorado Department of Revenue within 30 days of the closing date of the transaction. The amount withheld should be rounded to the nearest dollar or the net proceeds from the sale if the proceeds are less than two percent of the sales price. 

    Failure to withhold and remit timely comes with a penalty of the greater of five hundred dollars or ten percent of the amount required to be withheld, not to exceed twenty-five hundred dollars. 

    Detailed instructions and the appropriate forms are all available on the Department's website: https://www.colorado.gov/REVENUE

    The information provided herein does not, and is not intended to, constitute legal advice; instead, all information, and content, in this article are for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information. This article contains links to other third-party websites. Such links are only for the convenience of the reader, user or browser; Fidelity National Title Group does not recommend or endorse the contents of the third-party sites.

    Article provided by contributing author:
    Diana Hoffman, Corporate Escrow Administrator
    Fidelity National Title Group
    National Escrow Administration 

     
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