If you’re a homeowner in Colorado, then you may be wondering if you have to pay taxes on the sale of your house. The good news is that most homeowners in Colorado don’t have to pay taxes on the sale of their house. But there are exceptions.
In this article, we’ll explain when you do and don’t have to pay taxes on the sale of your house in Colorado. We’ll also provide some tips for minimizing your tax liability.
Capital Gains Tax is a type of tax that is levied on the profit you make from selling an asset. The asset can be anything from stocks and bonds to real estate. Capital Gain Tax is calculated as a percentage of the total profit you made from selling the asset.
Table of Contents
• What Is Capital Gains Tax on Property
• Capital Gains Tax in Colorado
• How Much Is The Capital Gains Tax of a Property
• Avoid Capital Gains Tax When Selling Home
• 1031 Exchange Colorado
➥To Qualify For a 1031 Exchange
• Colorado Capital Gain Exclusion
• How To Avoid Capital Gains Tax On House Sale
• Opportunity Zones 2022
• Can I Afford To Sell My House And Buy Another
What Is Capital Gains Tax on Property?
A Capital gains tax refers to a tax on the increase in value of an investment or property. When you sell an asset for more than you paid for it, you realize a capital gain. This are taxed at different rates than ordinary income.
The federal government taxes long-term capital gains at a lower rate than short-term capital gains.
- Long-term capital gains are gains on assets held for more than one year.
- Short-term capital gains are gains on assets held for one year or less.
Colorado doesn’t have a state Capital Gains Tax, but if you’re selling your house for a profit, you may still owe federal Capital Gains Tax. It is only owed on the portion of the sale price that exceeds your “tax basis.”
Capital Gains Tax in Colorado
Colorado is a non-recourse state, which means that lenders can only go after the property itself-not the borrower-if a mortgage goes into default. This protects borrowers from having to pay Capital Gains Tax on the sale of their house if they sell it for less than they owe on their mortgage.
Your tax basis is generally the purchase price of your house, plus any capital improvements you’ve made over the years. So, if you bought your house for $100,000 and made $10,000 worth of capital improvements, your tax basis would be $110.
How Much Is The Capital Gains Tax of a Property?
The Capital Gain Tax rate is 20% for long-term capital gains and 40% for short-term capital gains. Capital gains are taxed at different rates than ordinary income. The federal government taxes long-term capital gains at a lower rate than short-term capital gains.
How To Avoid Capital Gains Tax When Selling Your Home
Selling a house in Colorado can result in Capital Gains Tax liability. This can be a significant expense if you’re selling your house for a profit. You can’t avoid it entirely but you can minimize it.
Avoid it in your Primary Residence in Colorado by following the Capital Gains Exclusion rules. If you don’t qualify for the exclusion, you may be able to defer it by completing a 1031 exchange.
The Capital Gains exclusion rule states that you must have owned and lived in your home for at least two years. You also can’t have excluded the gain from the sale of another home within the past two years.
1031 Exchange Colorado
This refers to the exchange of one asset for another. This is a complex transaction and there are a number of rules and regulations that must be followed in order to complete the exchange. The most common type of 1031 exchange is the exchange of investment property for other investment property.
To qualify for a 1031 exchange, you must:
1. Sell your property for a profit.
2. Reinvest the proceeds from the sale into another “like-kind” property.
3. Complete the exchange within 180 days of selling your property.
Colorado Capital Gains Exclusion
Colorado allows a Capital Gains exclusion of up to $500,000 for the sale of a primary residence. This exclusion is available to both married and unmarried couples.
To qualify for the exclusion, you must:
1. Have owned and lived in your home for at least two years
2. Have not excluded the gain from the sale of another home within the past two years
3. Use the proceeds from the sale to buy another primary residence within two years of the sale.
If you meet all of the above requirements, you can exclude up to $500,000 of Capital Gains from taxes on the sale of your home. If you’re married and filing jointly, you can exclude up to $1,000,000 of Capital Gains.
How To Avoid Capital Gains Tax On House Sale
Capital Gains Tax can be a significant expense if you’re selling your house for a profit. However, there are a few things you can do to minimize your liability:
- Sell your house during a recession
- Sell your house for less than you paid for it
- Donate your house to charity
- Rent out your house instead of selling it.
- Use a 1031 exchange to defer Capital Gains Tax on the sale of your property.
Opportunity Zones 2022
An Opportunity Zone is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment.
The Capital Gains Tax deferral incentive allows you to reinvest it into an Opportunity Fund which, in turn, invests in Qualified Opportunity Zones. The Capital Gains on the reinvested is deferred until the earlier of:
The date on which the investment in the Qualified Opportunity Fund is sold or exchanged. If you hold the investment in the Qualified Opportunity Fund for at least 10 years, you may be eligible for a Capital Gains Tax exclusion on the sale or exchange of your interest in the Qualified Opportunity Fund.
Can I Afford To Sell My House And Buy Another?
Capital Gains Tax can have a significant impact on the affordability of selling your house and buying another. Use a Capital Gain Tax Calculator to estimate your tax liability.
Make sure to sell your house while the market is hot and there are more buyers than houses for sale. This ensures that you’ll be able to sell your house quickly and for top dollar. However, timing the market is difficult, so it’s important to consult with a real estate professional to get the most accurate advice.
We at Colorado Cash Buyers are homebuyers who pay all cash for your property. This means that you won’t have to worry about tax on the sale of your property. If you don’t qualify for the capital gains exclusion, you may be able to defer it by completing a 1031 exchange. We will guide you through the process and help you make the best decision for your situation. Give us a call today to learn more! Or you may fill up the form to get an offer for your property in Colorado.