In certain states there is a mandatory tax withholding for nonresident individuals or businesses on the sale of real property. In performing a 1031 exchange you may be provided an exemption if executed properly. In the following section you will find a brief synopsis of the state withholding requirements. It is always important to consult your tax advisor before moving forward with a 1031 exchange. Failing to consult the correct professional advisors early could result in unnecessary taxes.
ALABAMA
Withholding: 3% of the sales price for individuals; 4% of the sales price for business entities.
Exemption: Submit form NR-AF3 (“Seller’s Certificate of Exemption”)
Further Information
COLORADO
Withholding: 2% of the sales price if the property is over $100,000.
Exemption: In a 1031 exchange, the non-Colorado resident may sign an “Affirmation of No Reasonably Estimated Tax to be Due” per Colorado Department of Revenue Form DR1083.
Further Information
HAWAII
Withholding: 5% of the sales price under the Hawaii Real Property Tax Act.
Exemption: Completion of Form N-289 stating the seller is performing a 1031 exchange.
Further Information
MARYLAND
Withholding: 7.5% by nonresident individual and 8.25% by nonresident entity.
Exemption: Submit Form MW506AE at least 21 days prior to closing to the Maryland Comptroller’s Office if there is no boot. The state of Maryland also requires a letter from the qualified intermediary stating the amount of boot.
Further Information
NEW JERSEY
Withholding: The buyer must file Form C-9000 with the Division of Taxation at least 10 days before closing. Within 10 days, the Division will forward a notice of the amount to be held in escrow at the closing including existing tax debts, delinquencies, assessments and tax on gain from the sale of property.
Exemption: The seller may file an Asset Transfer Tax Declaration form to assist the Division in calculating the estimated tax on the gain. The Division has the discretion to adjust the escrow amount held. Payment of the taxes is made from the escrow account.
Further Information
NORTH CAROLINA
Withholding: 4% of the sales price. The buyer must file a return with the Secretary of the State of North Carolina within 15 days of the sale closing.
Further Information: NC Tax Code, Section 105-163
OREGON
Withholding: The lesser of 4% of the consideration or 8% of the gain or proceeds for individuals and C Corporations.
Exemption: Submit Form WC exemption form.
Further Information
SOUTH CAROLINA
Withholding: 7% for individuals and 5% for corporations.
Exemption: Completion of Form I-295.
Further Information
WEST VIRGINIA
Withholding: 2.5% of the sale proceeds or estimated capital gain.
Exemption: File Form WV.NRAE with the State Tax Department no later than 21 days before closing.
Further Information: West Virginia Code 11-21-71b
Information presented in this article should not be perceived as tax or legal advice. Please consult your attorney and tax advisor before proceeding with a 1031 exchange.
Updated 7/15/2022