Colorado Non-Resident Real Estate Sale Withholding Requirements
by Michael Selinfreund, President/General Counsel at Cherry Creek Title Services, Inc., Agent for Commonwealth/Fidelity, First American & NATIC
March 4, 2016
This article is intended for educational purposes only and not as legal advice.
Colorado imposes a withholding requirement on corporations that do not maintain a permanent place of business in Colorado, and non-resident individuals, estates and trusts on the sale of real estate in excess of $100,000. The withholding tax when imposed is the lesser of two percent of the sales price, rounded to the nearest dollar, or, the net proceeds from the sale. The tax is withheld at closing by the title company, and the taxes are submitted to the Colorado Department of Revenue (DOR). The seller can claim credit for the estimated payment against the income tax liability when filing a Colorado income tax return for the year of the sale. Pursuant to C.R.S. 39-22-604.5, the seller must file a Colorado individual income tax return to claim the estimated payment credit against any Colorado income tax liability.
If the sales price exceeds $100,000, there are still 4 exceptions to the requirement to withhold and report:
* The seller is an individual, estate, trustee, partner or partnership and both the Form 1099-S and the authorization, if any, for disbursement of funds from the sale show the seller as having a Colorado address.
* The seller is a government agency.
* The seller is a corporation that is incorporated under Colorado law or is currently registered with the Secretary of State’s office as qualified to transact business in Colorado.
* The transferee of the property is a bank or a corporate beneficiary under a mortgage or under a deed of trust, and the property was acquired by foreclosure of by deed in lieu of foreclosure.
There are 6 circumstances when no withholding is required but reporting is required through Form DR 1083, Information with Respect to a Conveyance of a Colorado Real Property Interest, and the form must be completed and submitted to the DOR within 30 days of the date of closing:
- the 1099-S shows a non-Colorado address but the individual, estate or trust affirms Colorado residency at the time of sale, or
- the seller, corporation or partnership signs the affirmation of permanent place of business within Colorado, or
- the seller, who is an individual, signs the affirmation that the property was his/her principal residence immediately prior to the transfer, or
- the seller signs an affirmation that no Colorado income tax will be due on the sale, or
- there would have been withholding, but there were no net proceeds due to the seller, or
- the seller is a partnership, required to file an annual return of income for federal income tax purposes.
When withholding applies, Form DR 1079, Payment of Withholding Tax on Certain Colorado Real Property Interest Transfers, must be completed and submitted to the DOR within 30 days of the date of closing along with the tax payment and Form DR 1083. Forms DR 1079 and DR 1083 are available at the DOR website. If a foreign seller is involved, see my article regarding FIRPTA under education at www.cherrycreektitle.com or on my LinkedIn profile publications page.