Do Non-Residents Pay Colorado Capital Gains Tax?

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Answered by: Karen, An Expert in the Taxes Category
Colorado is one of several states that taxes capital gains on the state level. You do not have to be a Colorado resident in order to owe capital gains taxes. If you own an asset located in Colorado, you must file a Colorado state income tax return and pay tax on any capital gains. However, you can lower your capital gains tax bill by deducting the amount you paid to the federal government from the amount you report on your Colorado income tax return.

Who Must File

You must file a Colorado state income tax return if the source of your capital gains income is from an asset located in Colorado. It does not matter whether you are a full-time resident, a part-time resident or a non-resident. If you are a full-time resident, you must file a Colorado state income tax return if you have a capital gain from a Colorado asset or if you file a federal income tax return. If you are a part-time resident or a non-resident, your Colorado capital gains tax is prorated so that you are not taxed twice on the same income.

Qualifying Capital Gains Transactions

Colorado uses the Internal Revenue Service definition of what constitutes a capital gain. If you sell tangible personal property such as stocks or bonds that were issued by a Colorado corporation, a limited liability company or a partnership, the transaction qualifies as a Colorado capital gain. If you own real property such as a house, a mobile home, a condominium or vacant land located within Colorado’s borders and sell it, you have a qualified capital gain transaction.

Lowering Your Tax Liability

If you are a qualified Colorado taxpayer, you can deduct the amount of capital gains tax that you paid to the federal government from your Colorado capital gains tax liability. A qualified Colorado taxpayer is an individual, a corporation or an estate that does not owe back taxes or has not defaulted on any state or local government contractual obligation. For example, you report $1,000 in capital gains on your federal income tax return. Of that $1,000, $500 of it resulted from selling a lot that is located in Colorado. You can deduct the $500 on your Colorado state income tax return which reduces your capital gains tax liability. To take the deduction, you must have acquired the asset on or after May 9, 1994 and have owned the asset for at least five years before you sold it.

Filing the Capital Gain Affidavit

You must complete Colorado tax form DR 1316, Colorado Source Capital Gain Affidavit, to take the capital gains tax deduction. The Affidavit also doubles as a worksheet so that you can calculate how much of your Colorado capital gain you can legally deduct. You must describe the asset on the Affidavit well enough so that anyone reading the description will immediately know what type of asset you sold. Otherwise, your tax refund could be delayed if the Department of Revenue has to contact you for additional information.


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