Colorado DR 1083 & DR 1079: The 'Lesser of 2% or Net Proceeds' Rule on a $600,000 Sale
When a nonresident sells Colorado real estate for $100,000 or more, the title company withholds Colorado tax at closing equal to the lesser of 2% of the sales price or the seller's net proceeds. On a $600,000 sale, the 2% figure is $12,000 — but if the seller walks away with less than that after the mortgage payoff, the withholding is capped at the net proceeds. Form DR 1083 reports the transaction and determines the amount; Form DR 1079 remits the money to the Colorado Department of Revenue within 30 days of closing.
Why Colorado withholds on out-of-state sellers
Colorado, like several states, worries that a seller who lives elsewhere will close on a property, pocket the gain, and never file a Colorado nonresident return to pay tax on it. So the state collects an estimated prepayment at the closing table and lets the seller true it up later on a Colorado return.
The rule lives in Colorado statute and is administered through two forms most sellers never see until the day they sign. The withholding is not a separate tax — it is an advance deposit against whatever Colorado income tax actually ends up being due on the gain. If too much is collected, the seller gets it back as a refund after filing.
With limited exceptions, sales of Colorado real property of $100,000 or more made by nonresidents are subject to withholding of the lesser of 2% of the sales price or the net proceeds, reported on DR 1083 and paid on DR 1079 within 30 days of closing. (Colorado DOR, DR 1083)
The two triggers: a price threshold and a non-Colorado address
Two conditions have to line up before the title company withholds anything.
1. The sales price is $100,000 or more
If the gross sales price is $100,000 or less, there is no withholding requirement at all — the price threshold is the first gate. A $600,000 sale clears it easily, so we move to the second test. (Land Title, 1099 certification & CO withholding)
2. The seller looks like a nonresident on the closing paperwork
The practical trigger the closing agent watches for is the address shown on Form 1099-S (the IRS proceeds-from-real-estate-transactions form) and on the authorization to disburse funds. If the seller's last-known address on those documents is outside Colorado, the transaction is presumed to need withholding. If both documents show a Colorado address, that is one of the recognized exceptions and the agent reports without withholding.
This is why a Colorado resident who has temporarily moved out of state, or who used a mailing address out of state, can get caught by withholding even though they may not actually owe Colorado tax. The fix is an affirmation on DR 1083 (more on that below), not an argument at the closing table.
- Sales price is $100,000 or less.
- The seller shows a Colorado address on both Form 1099-S and the disbursement authorization.
- The seller affirms (on DR 1083) Colorado residency, that the property was a principal residence, that there are no net proceeds, or that no Colorado tax is due on the sale.
- The seller is a government agency, a Colorado-incorporated/registered corporation, or the buyer is a lender taking the property through foreclosure or deed-in-lieu.
Source: Colorado DOR DR 1083 and Colorado title-company guidance. Always confirm the current form against tax.colorado.gov/DR1083.
The core math: lesser of 2% or net proceeds
Here is the calculation the closing agent runs once both triggers are met. There are only two numbers, and the agent withholds whichever is smaller:
- 2% of the gross sales price, rounded to the nearest dollar.
- The seller's net proceeds — the cash actually due to the seller on the settlement statement after the mortgage payoff, commissions, and other seller charges.
In a clean sale with plenty of equity, the 2% figure is the smaller of the two, so that is what gets withheld. In a thin-equity sale, the net proceeds can be smaller, which caps the withholding below 2%. The state never takes more cash than the seller is actually receiving.
Maria Delgado lives in Austin, Texas, and is selling her Breckenridge ski condo for $600,000. Her Form 1099-S shows her Texas address, and the price is well over $100,000 — so both withholding triggers are met. The title company runs the two-number test:
| Step | Figure |
|---|---|
| Gross sales price | $600,000 |
| Candidate A — 2% of sales price (2% × $600,000) | $12,000 |
| Mortgage payoff | $310,000 |
| Agent commissions (5%) | $30,000 |
| Other seller closing costs | $8,000 |
| Candidate B — net proceeds to seller ($600,000 − $348,000) | $252,000 |
| Withheld = lesser of A and B | $12,000 |
Maria's net proceeds ($252,000) are far larger than the 2% figure ($12,000), so the 2% amount wins. The title company withholds $12,000, reports the sale on DR 1083, and remits the $12,000 with DR 1079 to the Colorado Department of Revenue within 30 days. Maria takes home $252,000 − $12,000 = $240,000 at the table, and the $12,000 sits as a credit on her Colorado account.
The thin-proceeds case: when net proceeds cap the withholding
The "lesser of" rule matters most when a seller is highly leveraged. If the mortgage payoff and selling costs eat almost all of the price, the seller's net proceeds — not 2% — become the ceiling.
Greg Anderson, a Phoenix resident, sells his Colorado Springs rental for the same $600,000, but he refinanced heavily and owes a lot. His settlement statement looks like this:
| Step | Figure |
|---|---|
| Gross sales price | $600,000 |
| Candidate A — 2% of sales price | $12,000 |
| Mortgage payoff (high-balance refi) | $555,000 |
| Commissions + closing costs | $37,000 |
| Candidate B — net proceeds ($600,000 − $592,000) | $8,000 |
| Withheld = lesser of A and B | $8,000 |
Here the net proceeds ($8,000) are smaller than the 2% figure ($12,000), so the net proceeds cap applies. The title company withholds only $8,000 — it cannot pull more cash than Greg is actually receiving. If the math had come out to truly zero or negative net proceeds (for example, the seller brings cash to close), the seller can affirm "no net proceeds" on DR 1083 and no money is withheld at all, though the transaction is still reported.
How DR 1083 and DR 1079 split the work
People often blur the two forms together. They do different jobs:
| Form | What it does | Who completes it |
|---|---|---|
| DR 1083 Information With Respect to a Conveyance of a Colorado Real Property Interest | Reports the transaction details and the seller's affirmations; it is where the amount (or an exemption) is determined. Filed on every covered conveyance, even when nothing is withheld. | Closing/title agent, using the seller's affirmations |
| DR 1079 Payment of Withholding Tax on Certain Colorado Real Property Interest Transfers | Actually remits the withheld dollars to the Colorado Department of Revenue. Filed together with DR 1083 only when tax was withheld. | Closing/title agent |
The deadline for both is 30 days from the closing date. The amount remitted on DR 1079 is credited to the seller's Colorado income-tax account, much like wage withholding. (Colorado DOR, DR 1079)
If you might qualify for an exception — Colorado residency, principal-residence status, or a no-gain/no-net-proceeds position — raise it with the title company before closing, not after. The affirmations live on DR 1083, and it is far easier to skip the withholding than to chase a refund of cash already sent to the state.
Claiming the credit on your Colorado nonresident return
The withholding is an estimated prepayment, so you recover any excess by filing a Colorado return for the year of sale. As a nonresident, you file:
- DR 0104 — Colorado Individual Income Tax Return, and
- DR 0104PN — the Part-Year Resident/Nonresident Calculation Schedule, which prorates your tax so Colorado only taxes the Colorado-source gain.
Crucial detail: the DR 1079 amount is not entered on the line for W-2 or 1099 wage withholding. Colorado provides a separate prepayment line on the DR 0104 that references nonresident real-estate withholding (the line that also covers Forms DR 0108 and DR 1079). Put the withheld amount there. (Colorado DOR, DR 0104PN)
Back to Maria. Suppose her actual Colorado-source capital gain on the condo, after basis and improvements, produces a Colorado income tax of about $8,500. The title company already deposited $12,000 via DR 1079.
| Line | Amount |
|---|---|
| Colorado tax on the gain (figured on DR 0104 + DR 0104PN) | $8,500 |
| Real-estate withholding prepayment (from DR 1079) | $12,000 |
| Colorado refund ($12,000 − $8,500) | $3,500 |
Maria files her Colorado nonresident return, claims the $12,000 on the nonresident-withholding prepayment line, and receives a $3,500 refund. Had her actual tax come out higher than $12,000, she would simply pay the difference — the withholding never closes off the final calculation.
Common mistakes that cost nonresident sellers money
- Forgetting to file the Colorado return. The $12,000 is a deposit, not a final tax. If you never file DR 0104, you never reclaim the overpayment — the state keeps it.
- Entering the credit on the wrong line. Put DR 1079 withholding on the nonresident real-estate prepayment line, not the W-2/1099 wage-withholding line, or the return will mismatch.
- Assuming a Colorado address fixes everything. Both the 1099-S and the disbursement authorization must show Colorado, or you file the affirmation on DR 1083 instead.
- Missing the 30-day clock. DR 1083 and DR 1079 are due within 30 days of closing — this is the closing agent's obligation, but it affects when your credit posts.
- Ignoring federal FIRPTA on top. If you are a foreign person, federal FIRPTA withholding (commonly 15%) can apply in addition to Colorado's 2% — they are separate regimes.
Frequently asked questions
Is Colorado's withholding always exactly 2% of the price?
No. It is the lesser of 2% of the gross sales price or the seller's net proceeds. On a high-equity sale the 2% figure usually wins; on a thin-equity sale the net proceeds cap the amount below 2%, and a no-net-proceeds sale can result in zero withholding (still reported on DR 1083).
What triggers the withholding in the first place?
Two things together: a sales price of $100,000 or more, and a seller who appears to be a nonresident — in practice, a non-Colorado address on Form 1099-S and the disbursement authorization. A Colorado address on both documents is a recognized exception.
What is the difference between DR 1083 and DR 1079?
DR 1083 reports the conveyance and the seller's affirmations and determines the amount (or exemption). DR 1079 actually remits the withheld tax to the Colorado Department of Revenue. Both are due within 30 days of closing; DR 1079 only when tax is withheld.
How do I get the withheld money back?
File a Colorado nonresident return — DR 0104 with the DR 0104PN schedule — for the year of sale, and claim the DR 1079 amount on the nonresident real-estate withholding prepayment line. If your actual Colorado tax is less than what was withheld, the difference comes back as a refund.
Does Colorado's 2% replace federal FIRPTA?
No. Colorado's 2% is a state prepayment. If you are a foreign person, federal FIRPTA withholding (often 15% of the amount realized) can apply on top of it. They are two separate systems with separate forms and separate returns.
Who is responsible for doing the withholding?
The title or closing agent handles the calculation, withholds at closing, files DR 1083, and remits on DR 1079. As the seller, your job is to provide accurate address and affirmation information — ideally well before closing — and to claim the credit on your Colorado return.
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