Is primary home sale taxable in Colorado? If no, why does it show in Turbo tax as a gain?

[Cindy0H · Accepted solution]

There is a Colorado Source Capital Gains & Losses (see screenshot) that you can take if you qualify. So if you do have a gain, despite the exclusion, it will not be taxed in Colorado if you can take the subtraction.

In Colorado and on your federal return, most of the time, you won’t have to worry about capital gains tax unless you’re an investor. The IRS allows you to exclude up to $250,000 of capital gains on real estate if you’re single or $500,000 if you’re married filing jointly. However, you’ll lose that benefit if the home wasn’t your primary residence, you owned the home for less than two years in the five years before selling it, you didn’t live in the house for at least two of those years, you already claimed the exclusion on another home in the past two years or you swapped the home in a 1031 exchange. 

If you have other questions about this, ask in the comment section below.

[Reaganfi]

Will be divorced by the time our house goes up for sale.
I was just told by accountant here in Colorado that you take price you paid for the house originally and subtract the profit amount from the sale, then pay 20% tax on that.  That would be a negative number wouldn’t it. Real estate usually appreciates doesn’t it?  We paid $250,000. originally and my portion of the profit from the sale is $400,000.  How do I figure this out?

[Critter-3]

Add together the original purchase price + the cost of purchase + the cost of sale + any improvements = the cost basis which you split with the ex.  

Then the sale should be reported on separate 1099-S forms  so you each report 1/2 of the sale on your individual returns.   Your 1/2 of the  Sales price on the 1099 form - your half of the cost basis =  profit/cap gains. 

Then if you lived in the home for 2 of the last 5 years ending on the date of sale you each will be able to exclude up to $250K of profit.  

Simple sample : 

Purchase price $250K =  $125 each

Sales price $1,050,000   = $525K each

525K - 125K = $400K  

$400 - $250 exclusion(if eligible)  = $150K profit x 20% tax = $30K tax on profit so this is the max amount of taxes on the return ... could be lower depending on the rest of your income.  

[JinNC]

Does any of this change if I sold a house in CO and moved out of the state?

[Vanessa A]

No, moving out of state will not change how you calculate your gain or if it is taxable.

One difference is, if you were living in another state when you sold the house, you may have to pay taxes on the gain to the state where you lived when you sold the house.

[schangpt]

I've got a gain from the sale of a primary residence in Colorado that qualifies for the $250,000 exemption on federal taxes. If my federal capital gains tax on the sale of this property is $0, does it mean that I also have the exemption on state taxes too?

I'm getting the impression that this is the case, but TurboTax keeps giving me the opportunity to enter a different number on my Colorado state taxes than on my federal taxes.

[MarilynG1]

Yes, if your Capital Gains from your home sale is $0 on your Federal return, you'll have no Capital Gains income to report in Colorado.

Even if you did have federal Capital Gain income, Colorado has an exclusion for capital gains on home sales, which is why you see an adjustment entry area.

Here's more info on Colorado Capital Gain Subtraction.