Colorado capital gains tax, how much it is, AND do you have To pay it.
This article will teach you everything you need to know about capital gains tax in Colorado. That said we won’t go into too much depth because that’s what accountants are for.
However, at the end of this article, you will know exactly how much you will have to pay in Capital gains when you sell your house.
Isn’t that what you want to know? How much tax you will have to pay when you sell your Colorado home?
Who am I?
My name is Shaun. I am a real estate investor. I make money by purchasing houses in Denver, CO, and then either flipping them or renting them out. Because of this, I have a really good understanding of when you have to pay capital gains tax on real estate sales.
Colorado: Real Estate Capital Gains Tax in Colorado
Denver, Colorado: Real Estate Capital Gains Tax in Colorado
You are here because you are thinking about selling your Colorado property. Are you selling your:
- Primary residence in Denver?
- A rental house in Lakewood or Grand junction, CO OR
- Your Keystone or Breckenridge vacation place.
It doesn’t matter what type of property you are selling in Colorado or where it ism you’re thinking you were gonna have to pay capital gains tax when you sell it right?
Good thing you found this article because we are going to tell you exactly what you need to know.
Do you live in Colorado?
People that live in Colorado and sell a house you are going to be subject to capital gains tax law.
I say that you will be subject to capital gains tax law in Colorado compared to you will have to pay capital gains tax because there are a few things you need to be aware of.
Keep reading and this image will make sense – I promise!!!
Not all Colorado home-sellers have to pay capital gains tax
Most people in Colorado and in fact in the country are under the assumption or belief that when you sell a house and make a profit, you have to pay capital gains. But what if I told you some people don’t have to pay capital gains tax when they sell?
We will get into a little more detail shortly, but quite simply, if it is a house that you live in. And you sell it and purchase another property that you are also going to live in. Then you won’t have to pay capital gains tax.
Another simple example is if you sell a house that was your primary residence and you lived there for more than five years, the chances are you will not have to pay capital gains tax either. That is unless after selling the house and paying all expenses and closing costs you made a profit of more than $250,000 if you are single and more than $500,000
Honestly, people if you make that kind of money then maybe paying a little tax is ok. Focus on the fact that you just made half a million dollars more and less on the fact you may now be paying a little capital gains tax, right?
This is how much is capital gains tax in Colorado?
This is how much capital gains tax rates are..
When it comes to living in Colorado, the amount that you must pay in capital gains tax is the same rate that you pay on your general income. In Colorado it is currently set at 4.63%.
Colorado’s capital gains tax rate of 4.63% is on the lower end which you can see in the list of all states below. Of course good old California comes in at number 1 when it comes to taxes. Capital gains tax is no different. Their rate is 13.30%. On the low end there are 8 states that have a capital gains tax rate of zero percent.
What is combined capital gains tax and does it affect me in Colorado?
It’s also important to look at the combined capital gains tax. The federal, state and local capital gains tax is combined to make one large sum, and that sum in Colorado is 29.63 percent. This is also on the low end, compared to the whopper California residents pay on capital gains of 37.3 percent and Oregon’s 34.9 percent.
Short term versus long term capital gains tax explained perfectly for you!
The image above shows you the long term rates for capital gains tax.
How is short term defined in reference to capital gains taxation?
If you own something for a short time then you will pay a different rate than if you own it for a long time.
Short-term capital tax rates are higher than long-term capital gains tax rates.
Why are short-term capital gains higher than long?
Most real estate experts and investors will tell you that the government set it up like this to provide added benefit to actual primary homeowners versus real estate investors.
Short term capital gains are applied to any house that is bought and then sold in less than a year.
An example of this might be a real estate investor that buys a house, fixes it up and then sells it (hopefully for a profit). This is also know as fix and flip or house flipping.
Currently flipping houses is a very common real estate investing strategy in Colorado. In-fact, as a real estate investor we just bought a house in Denver that we are going to fix and flip.
Short term rates are the same as the regular income tax rate that is applied to the person for that year.
Long term capital gains tax rates are applied to homes that are owned for more than 1 year.
Long-term capital gains tax rates come into effect on property that is owned for more than a year. Generally speaking, people that buy houses as a primary residence own them for more than a year.
The example being you buy a house for you and your family and you move into it. It is now your home.
In fact, in my experience as a real estate investor, I have never come across a primary owner that has owned their home or lived in it for less than a year. The shortest time that I have seen is 14 months.
Long-term rates are not exclusive to primary homeowners though. As stated long term rates are applied on the duration of the ownership, not the reason for owning.
So, if an investor buys a house and owned it for more than a year, and then re-sells it they will fall into the long-term capital gains tax bracket.
When the owner sells it they may have to move a tenant out of the property however despite what many potential landlords think this does not have to be a nightmare. In fact when the tenant moves out the lease dictates how clean they have to leave the place.
Capital gains tax in Colorado affects investors more often than primary home owners.
In Colorado, capital gains tax-absolutely affect more investors than it does typical homeowners. Why?
Because investors are more likely to buy and sell a home in less than a year. Therefore they will be subject to a higher tax rate. Therefore they will be affected more by capital gains tax.
However, even within investors, some will be more affected by capital gains than others. The real estate investors that will be hit harder by taxes are the fix and flip specialists. This is compared to buy and hold investors,
Real estate investors that focus on buy and hold strategies in Denver or anywhere in Colorado, normally own the investment property for longer than a year. This means they fall into the long-term capital gains tax bracket.
Other things to consider when it comes to capital gains tax and real estate.
The IRS has a rule that will potentially mean you don’t have to pay any capital gains when you sell your house. AND what is this rule you ask?
If the house that you sell is your primary residence then the IRS will apply yet another rule. If you sell your house for a profit, and you meet the criteria below the IRS will let you make a huge profit of up to $250,000 if you are single without having to pay any capital gains. The criteria are:
- You have owned the house for more than a year
- It is your primary residence
Do you meet those criteria?
Now if you are married and file your taxes jointly then you can make a profit of $500,000 and not pay any capital gains tax at all.
YIP YOU READ IT RIGHT!!!
You can profit up to half a million dollars and not pay any taxes on the gains. No wonder the rich keep getting richer right?
So will I have to pay capital gains tax when I sell my house in Colorado?
If you own your Colorado house for more than a year and it is your primary residence you will not have to pay capital gains if you sell it for a profit if the profit is less than:
- $250,000 if you are single OR
- $500,000 if you file your taxes as jointly married.
The tax code is very complicated, it can seem overwhelming but if you take some time there are some benefits to be had if you know what you are doing.
If you don’t know what you are doing but you still want to get the benefit when you sell your house then I would recommend that you talk to a trusted accountant that understands real estate.
If you would like to talk to an accountant that I use for my own personal and business taxes then you can fill out the form below. This team of accountants has helped me for many years and they have saved me a lot of money in a 100% legal and legitimate fashion.
As they always tell me it is against the IRS rules to avoid paying taxes of any kind. However if you know the tax code inside and out, and stay up to date with changes, there is a good chance you can delay paying taxes indefinitely.
Do you want more answers about capital gains or any other tax question
I am a real estate professional so my accountant knows everything there is to know about real estate, taxes, and more. If you want to talk to them let me know and I will put you in touch for sure!