Understanding Colorado’s Transfer Tax: A Quick Guide
- Published on
- 7 min read
-
Joseph Gordon Associate EditorClose
Joseph Gordon Associate EditorJoseph Gordon is an Associate Editor with HomeLight. He has seven years of experience reporting on the commercial real estate and insurance industries. He holds an MFA in Creative Writing from the University of San Francisco.
At HomeLight, our vision is a world where every real estate transaction is simple, certain, and satisfying. Therefore, we promote strict editorial integrity in each of our posts.
Selling your home in Colorado? You might be asking yourself a lot of questions about your bottom line and how it works, one of which is likely “Is there a Colorado transfer tax?”
What is a real estate transfer tax? A real estate transfer tax is levied on a transaction that transfers property ownership from one person or entity to another.
Our comprehensive guide will dig into the specifics of transfer taxes in Colorado, showing yiou what sellers should expect to pay when they decide to move on from their property.
From state to city levels, we will cover the types of transfer taxes imposed, who is responsible for these fees, and any possible exemptions. Whether you’re selling a mountain retreat in Aspen or a suburban home in Denver, knowing these details can significantly impact your closing process.
Connect with a Top Agent to Help Maximize Value
Even rockstar agents can’t make your tax liability disappear, but HomeLight data shows that the top 5% of agents across the U.S. help clients sell their home for as much as 10% more than the average real estate agent, helping offset the tax bill.
Disclaimer: This post is for educational purposes only and does not constitute legal or financial advice. Links and mentions of Colorado area tax services or attorneys should not be considered endorsements.
What are transfer taxes?
Real estate transfer taxes are a type of levy imposed by state or local governments when ownership of property is transferred from one party to another.
According to the Federal Trade Commission, a transfer tax is applicable whenever the title of a property—essentially the legal documentation that confirms ownership—is passed to a new owner. The specific amount owed in transfer taxes can vary significantly depending on the property’s location, as each state, county, and even city may have its own regulations and rates.
These taxes are primarily a way for governments to generate revenue, supporting various public services and infrastructure projects.
Colorado is an exception, as the state doesn’t actually levy a “transfer tax” due to an amendment passed by the state over 30 years ago, putting a stop on the creation of any new taxes levied at the state level, while also prohibiting any current real estate transfer taxes from being imposed.
Instead, lawmakers created a “documentary fee” as a workaround, though it functionally serves the same purpose as a transfer tax.
Who pays for transfer taxes?
Unlike other states, in Colorado, the buyer is typically responsible for documentary fee, or transfer tax. However, the buyer and seller have the option to come up with an agreement to determine who pays what.
What are the types of transfer taxes?
Transfer taxes will typically vary based on local guidelines but can generally be broken down into three categories — state, city, and county, depending on the state. Here’s a quick look at how it works in Colorado.
State transfer taxes
In Colorado, the statewide documentary fee is levied at a rate of 2 cents for every $100 of the property’s sale price.
For example, on a property that sells for $400,000, the buyer is responsible for an $80 fee.
City transfer taxes
Fees in various Colorado cities will also vary, as 12 cities within the state have their own jurisdiction to impose a rael estate transfer tax. For example, in Winter Park, Colorado, a real estate transfer tax of 1% is levied on any property that changes ownership within the city limits.
According to the Tabor Foundation, there are 12 cities within Colorado that can impose a transfer tax. Here’s a quick overview of those cities and their rates:
| Aspen | 1.5% |
| Avon | 2% |
| Breckenridge | 1% |
| Crested Butte | 3% |
| Frisco | 1% |
| Gypsum | 1% |
| Minturn | 1% |
| Ophir | 4% |
| Snowmass Village | 1% |
| Telluride | 3% |
| Vail | 1% |
| Winter Park | 1% |
However, there are some key points to consider. For example, Aspen’s 1.5% rate is actually the result of two separate rates, according to the Tabor Foundation.
Other transfer fees
In addition to transfer taxes, there are other possible fees to consider, such as from a homeowner’s association or another local neighborhood organization. Again, as these can vary heavily based on location, it’s important to consult a professional.
If you’re selling your home for sale by owner, consulting a professional might help with some of the finer points of the process and give you a better idea of what you can expect.
Are transfer taxes deductible?
Transfer taxes are not deductible on your income tax returns. However, these taxes can indirectly reduce the amount you owe in capital gains taxes. Capital gains refer to the profit made from selling your home or other property, which, like other types of income, is taxable by the federal government. To potentially lower these taxes, sellers can include the transfer taxes paid as part of their selling expenses.
According to the IRS, incorporating transfer taxes as selling costs allows sellers to deduct these expenses from the home’s final sale price at closing. This adjustment can lead to a lower reported profit from the sale, thereby reducing the capital gains tax liability. This strategic accounting move can provide significant tax benefits to sellers under the right circumstances.
Transfer tax exemptions
Some sellers in Colorado may be eligible for exemptions from transfer taxes, depending on specific conditions outlined by state and local laws. Exemptions typically apply to transactions involving certain types of parties or properties. Here are some key scenarios where transfer taxes might not apply:
- Transactions where the United States, its agencies, the state of Colorado, or any political subdivision is a party, provided an affidavit stating the consideration paid is filed or noted on the deed.
- Deeds related to gifts of real property.
- Public trustee’s deeds, treasurer’s deeds, and sheriff’s deeds.
- Instruments that confirm or correct previously recorded deeds.
- Deeds transferring cemetery lots.
- Short-term executory contracts for real estate sales where the title is not transferred.
- Leases or assignments of leases.
- Documents securing payment of debt.
- Transfers involving future interests in real property.
- Court decrees or orders determining or vesting title.
- Documents necessary for transferring property due to the owner’s death.
- Rights-of-way and easement documents.
Estimating transfer taxes for your home sale
When planning to sell your home in Colorado, estimating the potential transfer taxes and other costs is crucial to understanding your financial outcomes. Utilize HomeLight’s Net Proceeds Calculator for a quick and detailed estimate of what you might net from your home sale. This tool considers various expenses such as closing costs, transfer taxes, agent fees, and any renovations, providing you with a comprehensive view of your financial picture.
For an accurate and personalized assessment of your transfer taxes and other closing costs, it’s advisable to consult with a top real estate agent. A skilled agent can offer valuable insights and guidance on how these costs might be negotiated based on current market conditions.
Header Image Source: (emlees / Pixabay)
