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Colorado

1031 Exchanges
Colorado

What is a 1031 exchange?

A 1031 exchange is a tax strategy that allows you to defer paying capital gains taxes when you sell an investment property, as long as you reinvest the proceeds into a new, like-kind property. This means you can sell one property and buy another similar one without immediately paying taxes on any gains from the sale.

These like-kind exchanges are covered under Section 1031 of the Internal Revenue Code (hence the name "1031 Exchanges") and apply to federal capital gains taxes. However, each state has their own tax code, and may have different rules for real estate tax withholdings, the ability to complete a tax-deferred sale, or the rules around like-kind exchanges. Below we'll dive deep into these state-level specifics.

Colorado State Taxes

Colorado Real Estate Withholding Taxes

In Colorado, the real estate tax withholding rules require withholding 2% of the sales price or the net proceeds, whichever is less, when a nonresident sells a Colorado real property interest. However, there are exemptions available:

  1. Exemption for 1031 Exchange: If the seller is performing a §1031 exchange, they may sign an "Affirmation of No Reasonably Estimated Tax to be Due" using Colorado Department of Revenue Form DR1083 to claim an exemption from withholding.
  2. Other Exemptions: No withholding is required if:
    • The sales price does not exceed $100,000.
    • The property is acquired by a bank or corporate beneficiary in foreclosure or by deed in lieu of foreclosure.
    • The transferor certifies under penalty of perjury that they are a Colorado resident, the property is their principal residence, or they will not owe tax on the gain.

For more detailed information, you can refer to the Colorado Revised Statutes Title 39, Section 39-22-604.5, or visit the Colorado Department of Revenue website.

Colorado Capital Gains Tax Rates

State Tax Rate

4.40%

Local Tax Rate

0.00%

Combined Tax Rate

29.40%

Deductions

None

The Combined Rate accounts for Federal, State, and Local tax rate on capital gains income, the 3.8 percent Surtax on capital gains and the marginal effect of Pease Limitations (which results in a tax rate increase of 1.18 percent).

Income Taxes

Colorado has a flat income tax rate of 4.63% of federal taxable income, regardless of income level.

How does a 1031 exchange work in Colorado?

Conducting a 1031 exchange in Colorado isn't unique relative to most states in the U.S. The rules and processes for a 1031 exchange, as outlined in Section 1031 of the Internal Revenue Code, apply uniformly across all 50 states. This means that the fundamental requirements, such as the need for the properties involved to be held for investment or productive use in a trade or business, and the like-kind nature of the exchanged properties, remain consistent whether the exchange involves properties in Colorado or elsewhere in the country.

Colorado 1031 Exchange Rules

Many states recognize and follow the federal rules for a qualifying 1031 exchange. We recommending reviewing these resources for 1031 exchanges at the federal level - learn about the rules for an exchange, the key deadlines you must meet, and why you are required to work with a Qualified Intermediary like Deferred.com.

1031 Exchange Companies in Colorado

Deferred

Nationwide, including Colorado

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1031 Exchange Brokers Serving Colorado

Dino Monteverde
deferred.com
Verified
Norberto Villanueva
deferred.com
Verified
Deferred.com Resources

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