Colorado's Top 1031 Exchange Company
Colorado is a prime location for tourism with its mountains, hiking trails, ski resorts, and vibrant city life. The state attracts visitors year-round, making it an excellent area for real estate investors to buy short-term rental properties.
In Denver, the average occupancy rate is 81% in these short-term rentals. This offers the consistency that investors want to see from investment properties. With the excellent market outlook, real estate investment in Colorado has been on the rise for decades. By turning to services from 1031X in Colorado, you can reap the benefits of these rentals while deferring tax liability.
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What’s different about a 1031 Exchange in Colorado?
While the basic format of a 1031 exchange is the same in every state, many states have quirks — like Colorado. One of the most notable requirements relates to 1031 exchange language in a contract.
Do you need 1031 exchange language in a contract? By law, no. Even though it is a common practice (most basic CO real estate contracts will specify an exchange), there may be tactical reasons for staying silent about your exchange. With that said, there are two factors to weigh before signing a purchase and sale agreement in an exchange:
- Is the purchase and sale agreement assignable? This is necessary, since technically you will assign the contract to a Qualified Intermediary (QI) to satisfy IRS requirements*.
- How will your counterparty know that a 1031 exchange will happen? When you work with 1031X, we take care of this part for you by informing the other party about the exchange at the closing table.
*Typically, a 1031 exchange involves direct deeding. In these cases, the Qualified Intermediary shows up on the settlement statement instead of the tax payer. The IRS requires an assignment of contract in these cases.
However, the IRS does not require specific 1031 language in your contracts. It does require the counterparty to be aware of the 1031 exchange and sign a document consenting to it. This agreement can happen any time before settlement. It doesn’t have to be included in the contract of sale.
Professional exchange services from 1031X help you navigate the quirks of 1031 exchanges in Colorado.
Do Colorado 1031 Exchange companies commingle clients’ money?
No, 1031 exchange companies in Colorado do not commingle client money thanks to a law passed in 2009. During the Great Recession, the Colorado State Assembly passed the 2009 QI Act to limit the activities of Qualified Intermediaries and other 1031 facilitators. This act aimed to protect tax payers who engage with these facilitators.
While this act describes a series of requirements and procedures, it generally prevents QIs from:
- Commingling — put another way, mixing assets from multiple clients — exchange funds within operating accounts.
- Loaning or transferring funds to an unqualified entity in a 1031 exchange unless it is an Exchange Accommodation Titleholder (EAT).
The state also requires QIs to get written and signed permission from investors before moving funds in or out of an account. These laws are the reason 1031X opens up a safe and separate Qualified Escrow Account for each individual client. We also get the necessary signatures before moving your funds.
Does the Colorado withholding tax apply to 1031 Exchange transactions?
No, the state does not apply withholding tax as long as the seller signs an “Affirmation of No Tax Reasonably Estimated to be Due”. Like many states, Colorado assesses a withholding tax on property sales by non-residents. The current withholding tax rate is 2%. This tax essentially requires tax payers to withhold money for the purposes of paying taxes owed on a property’s income.
Let’s say a real estate investor based in Texas owns a mountain condo in Aspen, CO. The investor decides to sell, and the Colorado Department of Revenue enters the scene requiring a 2% withholding tax. Since a 1031 exchange defers tax liability, withholding tax doesn’t apply to you.
The Colorado Department of Revenue Form DR 1083 helps you share this fact with the state. When you sign and submit this form, you tell the state government that you won’t owe any taxes on the property, so there’s no need to withhold anything. Colorado gives you a thumbs up, and you’re officially exempt.
The benefits of 1031X as your Qualified Intermediary
When you choose 1031X for professional exchange services, you gain:
- Personalized attention: We provide one-on-one exchange services to help clients meet their unique goals. You’ll work with a designated Exchange Officer who will guide you through the process and answer every question.
- Decades of experience: We founded 1031X in Denver in 1994, which means that get decades of experience. We’ve also developed valuable connections with real estate professionals throughout the state to support your goals.
- Automation and user-friendly tools: Our automated, paperless process helps you manage forms without clutter. Plus, our online client portal makes it easy to sign and reference documents at any time, interact with your Exchange Officer, and identify properties for your exchange.
Get started with 1031X in Colorado
With 1031X, a Colorado 1031 exchange (without getting the runaround) is within reach. Request a free consultation today.