Documentation Requirements for Income Tax Capital Gain Subtraction

The department will make every effort to verify required documentation is included in the filing of an income tax return before contacting the taxpayer for more information. That is why it is important submit the following supporting documents for capital gain subtractions with the return.

  • A DR 1316 form, “Colorado Source Capital Gain Affidavit” must be completed and included with the return (electronic or paper). With e-filed returns, attaching the form to the electronic return or submitting it as an E-Filer Attachment in Revenue Online is not sufficient. For electronic returns, the information must be data entered on the DR 1316 portion of the return. 
  • A copy of the closing statements for both the purchase and sale of the property, or official documentation from the county detailing purchase date and price and sale date and price
  • Copies of the first two pages of the corresponding federal return, Schedule D and any Schedule D attachments
  • If the capital gain was received via a pass-through entity, documentation that the interest in the underlying business satisfies the required five-year holding period

If form DR 1316 is included, and the capital gain subtraction claimed is $100,000 or less, the department will continue its practice of reviewing the capital gain subtraction claim two to three years after the return is originally filed, when the IRS provides federal return information to Colorado’s Discovery Section.

For more information, see publication FYI Income 15.