Taxes on Selling a House in Colorado

Capital gains tax

You’ve likely heard the term “capital gains tax,” but what is it?

When you sell a “capital asset,” which is something you own, such as a piece of real estate, that is not used for a business, any profits that the sale yields are considered capital gains. Capital assets most commonly include things like your home or vehicle but can also include stocks, bonds, or art.

A capital gains tax is a tax levied on any capital gains earned during a tax year. For example, if you purchased your Colorado home for $585,000 and sold it a few years later for $685,000, you have earned a capital gain of $100,000, which would be taxed.

Capital gains tax rates differ by state. Some states, like Florida, don’t even have a capital gains tax. The tax rate varies based on your income bracket, ranging between 0% and 20%.

Additionally, capital gains are classified as either “short-term” or “long-term” at the Federal level.

• Capital gains are considered short-term when an asset is sold within a year of its purchase. Those gains are lumped into your regular income and taxed according to your tax bracket.
• Capital gains are considered long-term when earned from the sale of an asset after at least a full year of ownership. For a home sale, those gains are taxed at a variable rate, depending on your income. The table below will illustrate:

2025 capital gains tax brackets

The table below shows the long-term capital gains rates for tax year 2025. The federal income tax has seven tax rates in 2025: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

It’s also possible to have your capital gains excluded at the Federal level, assuming you qualify.

The maximum amount of capital gain that can be excluded is $250,000 for single filers, and $500,000 for a married couple that is filing jointly.

According to the IRS Publication 523, you must meet these criteria:

• The home being sold is your primary residence.
• You’ve owned the home for at least two years in the five-year period before selling it.
• You’ve lived in the home for at least two years within the five-year period before selling it. The years you’ve lived in it don’t need to be consecutive. Certain exceptions to this rule are made for those who are disabled or those in the military, Foreign Service, intelligence community, or Peace Corps.
• You didn’t acquire the home through a like-kind exchange (also known as a section 1031 exchange) within the past five years. This is basically when you swap one investment property for another.
• You haven’t claimed the exclusion on another home in the past two years.
• You aren’t subject to expatriate tax (a government fee paid by those who renounce their citizenship or take up residency in another country).

If you don’t fit any of the above criteria, you may still qualify for a partial exclusion.

Circumstances such as a change in workplace location, a problem with your health, or having to sell the property of a parent who passed away, among others, can qualify you. For more, please refer to IRS Publication 523.

How to report your Colorado capital gains taxes

• For your federal return, report your capital gains and losses by using U.S. Individual Income Tax Return (IRS Form 1040) and Capital Gains and Losses, Schedule D (IRS Form 1040).
• For your Colorado Source Capital Gain Affidavit, use form number DR 1316.

Colorado transfer taxes

Whenever you sell your home and transfer the legal ownership to the buyer, the government charges a tax on this transaction. This is known as a transfer tax, also sometimes called a Documentary Stamp Tax or recordation tax, depending on the state.

The Federal Trade Commission describes transfer taxes as fees that state or local governments impose when the title to a property transfers from one owner to another.

The amount owed in transfer taxes when selling your home will vary, as different states, counties, and cities have their own guidelines. Similar to other forms of taxation, these taxes are a way for the government to generate revenue and are an important part of determining your overall profit when selling your home.

Who pays the transfer tax will also depend on the state. Sometimes, it is the buyer, sometimes it’s the seller, and sometimes, in the case of Colorado, it can fall to either, depending on the terms of the sales agreement.

Colorado’s transfer tax is levied at a rate of 1 cents for every $100 of the property’s sale price.

Property taxes owed

Property tax is a charge levied on real estate based on its assessed value, usually yearly. Like most tax-related charges, property taxes fluctuate depending on the state.

According to the Tax Foundation, Colorado’s effective property tax rate on owner-occupied housing value is typically 0.45%.

Colorado state taxes are paid by the calendar year, while local taxes are paid in arrears yearly (for a period between January 1 and December 31).

Your taxes are prorated to the day of sale when you sell your home, meaning you’ll only pay taxes for the days of the fiscal year that you owned your home.

The Colorado Department of Revenue can provide more information about taxes specific to your city or town here.

Selling an inherited home in Colorado

In some states, if you inherit a home, you may owe taxes. Colorado, however, is not one of these states. However, you will be responsible for any property taxes owed on the home. It’s also possible that a lien might exist on the property if the previous owner was not up to date on their taxes, which you would be responsible for.

Other selling expenses you might encounter in Colorado

• Title fees: Title fees typically include a title search and title insurance. Title insurance is designed to protect both the lender and the buyer of property against any issues with a home’s title, such as forgeries, an undiscovered will, or deed restrictions, that could arise during a title search. Who pays the title insurance can vary by state—in Colorado, this typically falls to the seller.
• Settlement fees: This is usually 1% of the home sale value. A lump sum (sometimes called escrow fees) is issued by the title company, escrow company, or attorney that is facilitating the closing of the transaction. These fees will usually cover the costs involved in the final paperwork and the distribution of fees. For example, the title fees and who pays for this vary, but they can be split between both parties.
• Agent commissions: Historically, when a property changed hands, a commission rate of 5%-6% was paid by the seller and typically split between the listing agent and the buyer’s agent. A percentage of this was then given to the respective brokerages. However, in mid-2024, a settlement by The National Association of Realtors (NAR) changed how these fees are calculated. While these commission rates will vary, according to HomeLight’s 2024 Top Agent Insights report, the majority of agents surveyed, 42%, say that sellers are still accepting a traditional 3% listing agent commission. 33% express that sellers are requesting a 2.50% commission.

How to prepare for Colorado real estate taxes

Real estate taxes don’t need to be intimidating, and they don’t need to catch you off guard. There are a number of ways you can get an idea of what you’ll owe before the time comes to sell your home, and HomeLight is here to help. Here are some final steps to consider:

• Know your home’s value: Use an online Automated Valuation Model (AVM) tool like HomeLight’s free Home Value Estimator. Having a ballpark idea of what your home might be worth can help you calculate the potential capital gains from the home sale.
• Save the right documents: Know what tax documents you will need if you purchase or sell a home before doing so. Consult with your tax professional about the federal and state documents needed in Colorado and the tax breaks you might qualify for.
• Find a top agent: One of the most important steps you can take is to find an experienced real estate agent who can guide you through the home sale process. A qualified agent can help you understand your tax burden and maximize your profits. Our data shows that the top 5% of real estate agents across the U.S. sell homes for 10% more than the average real estate agent.

HomeLight makes it easy to find top real estate agents in your market. From our agent match to innovative programs like Simple Sale and Buy Before You Sell, we have you covered when it comes to selling your home, ensuring every transaction is simple, certain, and satisfying.

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