Real estate taxes are one of the most complicated areas of taxation, not least because taxes are potentially due at both a federal and state level. This becomes even more complex in the state of Colorado, as tax authorities can oversee your property on a county, city, or even school district basis.
In order to help you along the way, we’ve created the ultimate guide to real estate taxes in Colorado. We’ll discuss everything from property taxes when you sell your home, transfer taxes, annual taxes, and more.
Will You Have to Pay Taxes When You Sell Your Home in Colorado?
At a federal level, if you sell your home for more than what you paid for it, then it is possible that you will need to pay capital gains tax on your profits. However, this is only the case if you made gains of more than $250,000, or $500,000 if you're married.
In order to be exempt from capital gains tax on the sale of your home, you'll also need to have lived in the property for at least two out of the last five years, and have not excluded capital gains from a previous sale that was made in the two years prior to selling the home.
At a state level, Colorado has a capital gains tax of 4.63%, which will again include any profits you make on the sale of your home. However, although you need to report this at both a state and federal level, you won't be liable to pay tax twice, if it's liable at all.
How Much Are Real Estate Transfer Taxes in Colorado (and Who Pays Them)?
When a property changes ownership, there is likely to be a transfer tax liable. Otherwise referred to as a"stamp tax" or "deed tax," the amount you need to pay can vary on a city, county, or state level. This is calculated as a percentage of the final sale price. Either negotiations or local customs will determine whether its the buyer or seller that pays it.
At a state level, property transfer taxes are known as a “document fee,” and they amount to 0.1% of the value of the sale.
Real estate transfer taxes on a city-by-city basis are slightly more tricky in Colorado, not least because rates vary depending on where your property is based. For example, properties sold in the Telluride and Mountain Village will be accustomed to a 3% transfer tax, which needs to be paid by the buyer.
In the City of Aspen, this is slightly lower at 1.5%, although the first $100,000 from the sale of your home is exempt. It is also a standard custom for the buyer to pay the transfer tax in Aspen, although a good real estate can often negotiate this so that the amount is split 50/50.
How to Calculate Property Taxes in Colorado
Each and every year we need to pay taxes on the home that we live in to help fund local services. This could fund vital services such as fire departments, or something less visible like recreational parks and libraries.
Property rates are set by the tax authorities on a county, city or even school district basis. This averages 0.57% across the state, meaning that Colorado actually has some of the lowest property taxes in the country.
The amount you pay will not only be determined by the specific Colorado area you live in, but also on the value of your property. Known as a property assessment, tax authorities will evaluate the market value of your home every two years.
The method used to value your home throughout the state is based entirely on a "sales comparison." This means that the value is determined by analyzing similar properties that recently sold in the area. You'll receive a copy of your home's valuation every May, and you'll have until June 1st to dispute the amount.
To confuse you even further, the value of the property assessment is not actually based on the market value per-say, rather a fraction of the market value is used. In the current tax year, this amounts to 7.2%.
For example, if your Colorado home has a market value of $200,000, and the residential assessment rate is 7.2%, then your specific tax obligation would be based on an amount of $14,400.
Once again, the specific rate will depend on the tax authority that your property falls within. Those based in Broomfield County will pay an average tax rate of 0.769%, while those in Aspen will pay an average of 0.459%.
Ultimately, calculating your specific tax obligations can be a really complex task. If you're currently in the stage of buying a property in Colorado, it is best to have a conversation with a real estate agent that knows the local housing market well.
They'll be able to give you a full breakdown of how much you'll likely to pay, which will give you a better understanding of the overall cost of homeownership in your specific location.
Tax Breaks for Colorado Home Buyers & Sellers
If you're looking to buy or sell a property in the state of Colorado, then you might be eligible for certain tax breaks or exemptions. This could vary depending on the specific region that you're based, so its best to seek professional guidance from a certified accountant or tax specialist, to ensure that you maximize your potential savings.
Tax Breaks and Credits for Buyers
- Deducting mortgage interest: If you’re paying interest on the mortgage of your home, then you might be able to deduct this from your federal income taxes. The interest must be linked to a loan that was used to buy, improve or refinance a property, with a maximum total mortgage debt of $1 million ($500,000 if married but you're submitting separate tax returns).
- Home buyer tax credit: The home buyer tax credit program allows you to reduce your tax liability at the end of each tax year, for the duration of your mortgage. The program is only available to veterans or buyers in specific areas of Colorado. The amount you can claim back will also vary depending on a range of factors, such as the value of your home, or your current interest rate. People often save more than $100 via the Home Buyers Tax Credit program.
Read more about how a Clever Partner Agent can guide through the Colorado home buying process, including that of any tax breaks or credits you might be eligible for.
Tax Breaks and Write-Offs for Sellers
- Repairs/Revelations: One of the best tax breaks available to sellers are the costs associated with any repairs or renovations that were made, and related to the sale of the property.
- Moving expenses: If you're actively serving in the military, and looking to sell your home, you might be able to deduct any moving expenses that you incurred.
- General costs associated with selling: The IRS also allows you to make tax deductions on all of the costs associated with selling your property. This can include expenses such as home inspections, legal fees, and even real agent commissions.
Read more about how a Clever Partner Agent can find you additional cost savings when selling your Colorado home.