Which States Withhold Tax at Closing, and How a 1031 Exchange Gets You Out of It

The hold-back is an advance on the seller's income tax, so a deferred gain has nothing to withhold against

Each statute below requires the buyer or closing agent to withhold a percentage of the price, the net proceeds or an estimated gain from a seller who lives elsewhere, and to pay it to the revenue agency as a credit against the seller's eventual return. A section 1031 exchange that defers the whole gain leaves nothing to collect, which is why every state offers an exemption. The route differs, and the deadline is the part that gets missed; those deadlines are collected on exemption filing deadlines by state.

This page is the index. Each state has or will have its own form page with the line-by-line detail, and each state's broader tax picture is on its state 1031 page. The federal withholding that applies to foreign sellers everywhere is on FIRPTA and Form 8288-B at closing.

The withholding states, their rates and their exchange forms

Rates and forms below were checked on each agency's current form or guidance; the revision dates are in the sources.

• Alabama: 3% of the purchase price when the buyer is an individual, 4% when the buyer is an entity, or the same rate on the gain with Form NR-AF2; no withholding under $300,000; the seller's exemption is Form NR-AF3, whose like-kind line covers gain completely not recognized; a deferred exchange qualifies only if the intermediary agrees to remit on money left after 180 days.
• California: 3 1/3% of the sales price or an elected alternative on the gain; Form 593, Part IV line 10 exempts the exchange, the intermediary withholds on boot over $1,500 and on a failed exchange.
• Colorado: 2% of the sales price or the net proceeds if less, on sales over $100,000; Form DR 1083 carries the seller's affirmation that no Colorado tax is expected, filed by the closer within 30 days.
• Delaware: estimated tax of 6.6% of the gain, 8.7% for C corporations, on Form REW-EST, the successor to Form 5403, presented to the Recorder with the deed; Part 5 has a box for a sale or exchange exempt from gain realization.
• Georgia: 3% of the purchase price, or 3% of the gain with the IT-AFF2 affidavit; the IT-AFF3 certificate exempts a like-kind exchange and the buyer remits on Form G2-RP by the end of the following month.
• Hawaii: 7.25% of the amount realized from any seller who does not deliver Form N-289; box 2 is the nonrecognition certification, paid on N-288 within 20 days when it applies.
• Maine: 2.5% of the consideration when the price is $100,000 or more; Form REW-5 requests the exemption at least 5 business days before closing.
• Maryland: 8.75% of the total payment for individuals, 8.25% for entities, since July 1, 2025; Form MW506AE must reach the Comptroller 21 days before closing with a letter from the intermediary.
• Massachusetts: 4% of the gross sales price, or 5% of estimated gain by election, on sales of $1,000,000 or more closing on or after November 1, 2025; the Transferor's Certification has an oval for gain deferred under section 1031 through a qualified intermediary.
• Mississippi: Form 89-386 computes 5% of the gain, limited to net proceeds, on the seller's sworn affidavit.
• New Jersey: an estimated tax of the gain at the top rate but at least 2% of consideration on GIT/REP-1, or exemption on GIT/REP-3 box 7a for section 1031; no deed records without one of them.
• New York: estimated tax on the gain on Form IT-2663, handed to the recording officer with the deed; box 4B is the nonrecognition statement with a summary of the exchange.
• Oregon: the smallest of 4% of consideration, 8% of taxable gain or the net proceeds, on sales over $100,000; Form OR-18-WC line 11 subtracts gain excluded under a federal nonrecognition section.
• Rhode Island: withholding on a nonresident seller's net proceeds under R.I. Gen. Laws section 44-30-71.3, with an election to withhold on gain submitted before closing; see the Rhode Island form page.
• South Carolina: the gain, or the amount realized without an affidavit, times the top individual rate, 5.21% for 2026, or 5% for corporations, capped at the total payment, on Form I-290; the I-295 affidavit has like-kind exchange lines.
• Vermont: 2.5% of the consideration on Form RW-171 within 30 days unless a Commissioner's Certificate obtained through myVTax cites the exchange.
• West Virginia: 2.5% of the total payment or 4.58% of the estimated gain; Form NRAE must reach the Tax Division 21 days before closing.
• North Carolina: no withholding; the buyer files Form NC-1099NRS within 15 days of closing.

Three exemption routes: affidavit to the buyer, certificate from the agency, or box on the recording form

The affidavit states ask only that the seller swear to the facts and hand the paper to the buyer or closer. Georgia's IT-AFF3, Alabama's NR-AF3, South Carolina's I-295, Colorado's DR 1083 affirmation and Hawaii's N-289 are all signed at or before the table and never filed with the agency unless asked. The buyer is protected by relying on the affidavit in good faith, and the seller carries the perjury risk.

The certificate states want to see the exchange before closing. Maryland's MW506AE and West Virginia's NRAE need 21 days, Maine's REW-5 five business days, and Vermont's Commissioner's Certificate goes through its online portal. Miss the window and the full amount is withheld, with a refund application or the nonresident return as the way back.

The recording states tie the exemption to the deed. New York's IT-2663, New Jersey's GIT/REP-3 and Delaware's REW-EST are presented to the recording officer, who will not record without them. Massachusetts and California put the certification in the closer's file and require the closer to report it; California's Form 593 goes to the Franchise Tax Board by the 20th of the following month whether or not tax was withheld.

Boot and failed exchanges are where the states catch up

California is the most explicit: the intermediary must withhold 3 1/3% once the seller receives more than $1,500 of money or other property, and 3 1/3% of the full sales price if the exchange does not take place or does not qualify. Massachusetts requires withholding on gain recognized under section 1031(b) even in a qualifying exchange, and a seller whose exchange later fails must notify the Commissioner within ten days after the identification and exchange periods expire and pay what would have been withheld.

New Jersey gives a partly exempt seller the choice of paying 2% of the non-exempt amount at recording or making an estimated payment afterwards, and if a deferred exchange is voided the intermediary files GIT/REP-1 and remits 2% of the total consideration. Maryland asks for the boot figure on the MW506AE itself and issues a partial certificate for the rest. Alabama conditions its deferred-exchange exemption on the intermediary remitting on any money left after 180 days.

What counts as boot is the same in every state, because each starts from the federal recognized gain; the definitions are on what boot is in a 1031 exchange, and the choices when the exchange collapses are on failed 1031 exchange options.

Who signs, who files and who holds the liability

In every state the person who disburses the money, the closing attorney, title company or escrow agent, is the one who withholds and files, and the statutes make the buyer personally liable for amounts not withheld. That is why closers withhold by default and why the exemption paper has to be in their hands before the statement is drafted, as explained on reading the settlement statement.

The seller signs the affidavit or application; the intermediary supplies the letter or the boot figure where the state asks for it, and in California, Alabama and New Jersey the intermediary becomes the remitter when boot appears or the exchange fails. The planning question of whether the state tax is deferred at all, as opposed to merely not withheld, is on does a 1031 defer state capital gains tax.

When withholding happened anyway: refunds

Maryland's MW506R tentative refund may be filed 60 days after closing, but not for a property that sold for $1,500,000 or more. West Virginia's NRER early refund opens 30 days after the transfer and closes December 15 of the year of sale. Hawaii's N-288C gives a tentative refund once the Department confirms it received the payment. South Carolina allows an amended I-290 before the end of the tax year, Maine and Vermont refund through the nonresident return, and California credits the withholding in the year the money was withheld. In every state the return for the year of sale is the final reconciliation.