topic What is the 2% tax paid on the sale of a Colorado residence for? in State tax filing

What is the 2% tax paid on the sale of a Colorado residence for?

fpc — Thu, 19 Sep 2019 18:45:08 GMT

As a successor trustee living in Kansas and handling an estate, I sold a Colorado residence, which was assigned to a trust. I was required to pay a 2% tax, $4,000, on the proceeds at closing. Does anyone know what the tax is for?

Will I have to file an estate tax return for Colorado? And will the 2% tax be refunded once the return is processed?

Thank you!

Re: What is the 2% tax paid on the sale of a Colorado residence for?

Anonymous_ — Thu, 19 Sep 2019 19:50:14 GMT

@fpc wrote:

As a successor trustee living in Kansas and handling an estate, I sold a Colorado residence, which was assigned to a trust. I was required to pay a 2% tax, $4,000, on the proceeds at closing. Does anyone know what the tax is for?

I have no experience or knowledge with respect to Colorado taxation, but I was able to find information (at the link below) indicating that there is a 2% withholding tax on real property valued at more than $100,000.

https://www.ltgc.com/articles/1099-certification/

Re: What is the 2% tax paid on the sale of a Colorado residence for?

Critter — Thu, 19 Sep 2019 23:45:17 GMT

The trust did not PAY the tax at the sale ... it only had it withheld just like you have withholding on a paycheck. A state return must be filed to see if you owe more or get a refund of the excess withheld... just like you do with a personal tax return.

Re: What is the 2% tax paid on the sale of a Colorado residence for?

fpc — Sat, 21 Sep 2019 00:53:17 GMT

Withheld - not paid. Good point. So because of that, obviously I will have to file a Colorado estate return in order to have any chance of getting it back.

Do you know how to determine whether the withheld tax will be refunded? It seems the tax is a capital gains tax. Since the property was inherited, wouldn't that mean the cost basis becomes the value of the property at the time of the owner's death. So there wouldn't be any capital gain?

Thank you folks for the help with this.

Re: What is the 2% tax paid on the sale of a Colorado residence for?

Anonymous_ — Sat, 21 Sep 2019 01:00:44 GMT

@fpc wrote:
Since the property was inherited, wouldn't that mean the cost basis becomes the value of the property at the time of the owner's death. So there wouldn't be any capital gain?

Yes, if included in the decedent's gross estate, the cost basis would be stepped up to fair market value as of the date of death of the decedent.

In many instances, that results in little or no gain upon a sale shortly after the decedent's death.

Re: What is the 2% tax paid on the sale of a Colorado residence for?

fpc — Sat, 21 Sep 2019 02:50:31 GMT

Good news!

So that would seem to indicate that the estate should receive all of the withheld tax back.

The title company first informed me of the necessity to have 2% tax withheld. I asked whether the tax was a capital gains tax and they informed me that it wasn't. It was just a way for Colorado to get their share. I had no idea what that meant and obviously, like me, they had no idea what the tax was for either.

Thanks for the help!

Re: What is the 2% tax paid on the sale of a Colorado residence for?

Critter — Sat, 21 Sep 2019 14:28:02 GMT

Many states require a mandatory flat rate withholding on the sale ... so to get back any of it you must file the state return ... no way around it as the closing company told you.

Re: What is the 2% tax paid on the sale of a Colorado residence for?

fpc — Sun, 22 Sep 2019 01:24:14 GMT

Thank you for the great advice.