Georgia Forms IT-AFF2 and IT-AFF3: Exchange Exemption From Nonresident Withholding

The buyer withholds 3% of the price from a nonresident unless an exemption applies

Rule 560-7-8-.35 sets the default: nonresidents who sell or transfer Georgia real property are subject to 3% withholding computed on the purchase price. Residency is tested at closing. An individual is a nonresident if his or her principal residence is outside Georgia at the time of closing; a corporation, partnership, LLC or limited liability partnership is a nonresident if its principal place of business is outside Georgia, unless it meets the statute's conditions to be deemed a resident.

Co-owners are tested separately. If two people sell as joint tenants or tenants in common, withholding applies only to the amount realized or gain of the nonresident owner. A seller who is technically a nonresident but meets the deemed-resident conditions gives the buyer Form IT-AFF1.

Withholding is not required when the purchase price is less than $20,000. Above that, if the tax would be less than $600, the seller can give the buyer an IT-AFF2 and the buyer need not withhold.

Form IT-AFF3 is a sworn statement to the buyer, not an application

The rule says there are no filing requirements in exempt transactions; the Commissioner prepared the Certificate of Exemption, Form IT-AFF3, as an example of a document the seller can give the buyer to record the buyer's reliance on the seller's representation. The form itself says it is not required but is provided for the convenience of the seller and the protection of the buyer.

The seller initials every statement that applies; one is enough. The exchange line reads: the transaction is a like kind exchange and the income from this sale is not subject to federal or state income tax. Other lines cover a principal residence, a price under $20,000, a liability under $600 shown on IT-AFF2, a seller covered by a composite return, and, for tax years beginning on or after January 1, 2022, a pass-through entity that has made or will make Georgia's entity-level tax election.

The seller signs under penalties of perjury. If the seller is a disregarded single-member LLC, the LLC and its owner are both listed. Because nothing is filed in advance, there is no lead time: the form can be signed at the closing table.

Boot turns the exemption into an affidavit of gain

The like-kind line works only when none of the income is taxable. If you will receive cash at closing or expect leftover funds from the intermediary, part of the gain will be recognized, and initialing that line would misstate the facts.

The fallback is Form IT-AFF2. It computes gain on six lines: sales price, cost basis including improvements, depreciation, adjusted basis, selling expenses and net taxable gain. It is signed before a notary. The rule applies the 3% rate to the amount of recognized gain sworn on the affidavit and permits an alternate affidavit with substantially the same information; the printed form computes total gain, so discuss with your CPA and closer how a partial exchange should be shown.

Hypothetically, a nonresident selling for $1,000,000 with $400,000 of gain would face $30,000 of withholding on price, $12,000 on total gain, and less if the affidavit can show only the boot portion as recognized. Run your own numbers with your CPA. How boot arises is covered in what boot means.

Form G2-RP is filed by the buyer only when money is withheld

When withholding applies, the buyer files Form G2-RP with payment on or before the last day of the calendar month following the month of closing. Line 12 is the total sales price, line 13 the taxable gain if an IT-AFF2 was given, and line 14 the amount remitted. A separate form is required for each seller other than a spouse.

The rule lets the buyer substitute the closing statement or transfer tax statement for the G2-RP if one page shows the required information and is headed Georgia Withholding Tax Return for Real Estate Transfer. The buyer gives the seller a copy, and the seller attaches it to the Georgia return to claim the credit.

The IT-AFF2 goes to the Department with the G2-RP only when a balance is due. Basis, depreciation and expense records stay with the seller and are produced only on request.

What the exemption does not settle

IT-AFF3 decides only whether the buyer withholds at closing. It does not make the exchange qualify, and if the exchange later fails or produces boot, the gain is reported on your Georgia return for the year it is recognized. Georgia's rule does not describe a second withholding by the intermediary, unlike California's Form 593.

Georgia's tax on the sale and on later sales of the replacement property is on the Georgia 1031 exchange page. For a state-by-state view of who withholds and how each exemption is claimed, see which states withhold at closing.