Nonresident Seller Withholding: The 2% Rule In Colorado

Selling a Telluride or Mountain Village property while living out of state? Colorado’s 2% nonresident seller withholding often catches people by surprise. You want a smooth, predictable closing and to keep more of your proceeds. In this guide, you’ll learn when the 2% rule applies, the forms you’ll see, ways to qualify for exemptions, and how this interacts with federal FIRPTA. Let’s dive in.

What the 2% rule means

Colorado requires the closing or settlement agent to withhold the lesser of 2% of the sales price or the seller’s net proceeds when a nonresident sells Colorado real estate and certain conditions are met. The governing rule is set by Colorado Revised Statutes § 39-22-604.5. You can review the statute’s language on Colorado’s public law site.

This withholding is a prepayment, not a separate tax. You claim it as a credit on your Colorado income tax return. If the withheld amount is more than the tax you owe, you can request a refund on your return. See the Department of Revenue’s overview for nonresidents and part-year residents here.

When withholding is triggered

Who is responsible

The title insurance company or other entity providing closing and settlement services is responsible for withholding and remitting the funds to the state. That responsibility and related penalties are detailed in C.R.S. § 39-22-604.5.

Common triggers

• The sale price is more than $100,000. Transactions at or below $100,000 are excluded.
• For individuals, the Form 1099-S or authorization to disburse shows a last-known address outside Colorado at the time of transfer.
• For corporations, the corporation has no permanent place of business in Colorado immediately after closing.

These triggers and seller affirmations are documented on the state’s DR 1083 form.

How the amount is calculated

The closing agent withholds the lesser of: 2% of the sales price, or the seller’s net proceeds on the settlement statement. The statute explains how “sales price” is defined and confirms the net proceeds cap. See C.R.S. § 39-22-604.5.

Exemptions and affirmations

Common exemptions

• Sale price is $100,000 or less.
• Certain foreclosure or deed-in-lieu transfers to a lender or beneficiary.
• Corporate sellers with a permanent place of business in Colorado.

These are set out in C.R.S. § 39-22-604.5.

Using seller affirmations (DR 1083)

A seller can sign a sworn affirmation, under penalty of perjury, that allows the closing agent to rely on the stated facts and not withhold. Common affirmations include:

• You are a Colorado resident.
• The property is your principal residence.
• A corporate seller has a permanent place of business in Colorado.
• You will not owe Colorado income tax on the transaction based on a reasonable estimate.

Affirmations are collected using DR 1083.

Principal residence note

The principal residence affirmation references the federal principal residence exclusion. You will sign under penalty of perjury, so be confident you meet the criteria before choosing this route. See the instructions on DR 1083 and speak with your tax advisor if you are unsure.

FIRPTA and Colorado: Both can apply

FIRPTA is a federal rule that generally requires 15% withholding when a foreign person sells a U.S. real property interest. FIRPTA is separate from Colorado’s 2% state withholding, and both can apply in the same closing. Review the IRS overview of FIRPTA here.

If FIRPTA applies, you may explore a reduced federal withholding certificate using IRS Form 8288-B. That federal process is separate from Colorado’s DR 1083 affirmations. Details are in the IRS FIRPTA guidance here.

What to expect in a San Miguel County closing

The rule is statewide. San Miguel County closings follow the same Colorado statute and Department of Revenue forms. There is no separate county-level transfer withholding.

Seller checklist

• Before contract and closing:
  • Confirm the address that will appear on your Form 1099-S and the authorization to disburse. An out-of-state address can trigger withholding for individual sellers.
  • If you qualify for an exemption or an affirmation, prepare to sign DR 1083 and gather any supporting documents.
  • If you might be a foreign seller for federal purposes, review FIRPTA requirements and the possibility of an IRS withholding certificate.
• At closing:
  • Expect to complete DR 1083. If withholding applies, the title or escrow company will withhold and remit funds using DR 1079.
• After closing:
  • Claim the withholding as a credit on your Colorado income tax return. If more was withheld than you owe, request a refund on your return. See the Department’s guidance here.

Title and escrow notes sellers should know

• Closing agents are liable for withholding when required, so they will verify addresses, entity status, and any affirmations.
• They retain your signed DR 1083 and remit any withheld funds to the Department of Revenue using DR 1079 per current instructions.
• If FIRPTA may apply, they will also coordinate the separate federal paperwork.

Quick examples

• $1,000,000 sale by a nonresident with no exemption: 2% equals $20,000. The closing agent withholds $20,000, unless net proceeds are lower.
• Net proceeds cap: If your net proceeds are $12,000, the withheld amount is $12,000, not 2% of the price.
• Foreign seller: An $800,000 sale can trigger both federal FIRPTA withholding (generally 15% of the amount realized) and Colorado’s 2% withholding.

After closing: How to get the credit or refund

Colorado treats the withheld amount as a credit against your Colorado income tax. You claim it on your return, and any excess can be refunded. Read the Department of Revenue’s summary for nonresidents and part-year residents here.

If you are planning a San Miguel County sale or want a second opinion on your approach to closing, connect with Jim Lucarelli for experienced, white-glove guidance tailored to Telluride, Mountain Village, and the surrounding mesas.

FAQs

Colorado home sale: Is the 2% withholding a separate tax?

• It is a state withholding prepayment, not a separate tax, and it is credited on your Colorado income tax return.

Out-of-state seller in Colorado: Will 2% always be withheld?

• Not always; it depends on statutory triggers, and you may qualify for exemptions or provide a valid affirmation on DR 1083.

Corporate or trust sellers in Colorado: Do the rules apply?

• Yes; corporations without a permanent Colorado place of business can trigger withholding, and trusts or estates are treated like individual sellers for address-based triggers.

Colorado closing error: If the title company withholds by mistake, how do I recover funds?

• You claim the withheld amount as a credit on your Colorado return and request a refund if it exceeds the tax you owe.

Foreign sellers in Colorado: Does state withholding replace FIRPTA?

• No; FIRPTA is federal and separate, so both FIRPTA and Colorado withholding can apply to the same transaction.

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