When State Withholding Does NOT Apply: Sale-Price Thresholds and Primary-Residence Exemptions
State nonresident withholding usually does not apply in four situations: the sale price falls under the state's floor (commonly $100,000 in California and Colorado), the property was your principal residence and qualifies for the federal Section 121 exclusion, the sale produces a loss or zero gain, or your residency status changes so you no longer count as a nonresident. In every case you must affirmatively claim the exemption on a state certification form (FTB 593, Colorado DR 1083, or NY IT-2663) — escrow does not assume it for you.
Most sellers discover state withholding the hard way: a line on the settlement statement that quietly skims 2%–3.33% of the gross sale price and wires it to a state tax department before the seller sees a dollar. But these regimes are riddled with exemptions — and the threshold and primary-residence carve-outs catch a surprising share of ordinary sales. This guide walks through exactly when withholding switches off, with figures verified against the California Franchise Tax Board (FTB), the Colorado Department of Revenue, and the New York Department of Taxation and Finance for the 2025–2026 forms.
This page covers state-level nonresident withholding, which is separate from federal FIRPTA withholding (15% under IRC §1445) that applies only when the seller is a foreign person. A U.S. citizen who lives in another state can be exempt from one and subject to the other. See our FIRPTA basics hub for the federal side.
The four ways withholding turns off
Across the states that impose nonresident real-estate withholding, the exemptions cluster into four families. They are not interchangeable — each has its own certification mechanism, and claiming the wrong one (or claiming none) is the difference between netting your full proceeds at closing and waiting up to a year for a refund.
- Sale-price floor. If the gross sale price is at or below the state threshold, no withholding is required regardless of gain.
- Principal-residence exemption. If the home qualifies under IRC §121, the gain is excludable and withholding is waived (or set to zero).
- Loss or zero-gain. If the transaction produces no taxable gain, there is nothing to pre-pay, and withholding is reduced or waived.
- Residency-status change. If you are (or became) a resident of the state at the relevant time, you are not a "nonresident" seller and the regime does not apply.
Family 1: The sale-price floor (the $100,000 line)
Both California and Colorado set their withholding floor at $100,000. The mechanics differ slightly but the headline is the same: a sale at or below the floor is exempt, even if the seller lives out of state and even if there is a gain.
| State | Sale-price floor | Withholding rate above the floor | Certification form |
|---|---|---|---|
| California | $100,000 or less → exempt | 3 1/3% (3.33%) of total sales price | FTB Form 593 |
| Colorado | Under $100,000 → exempt | Lesser of 2% of sales price or the net proceeds | Form DR 1083 (DR 1079 to remit) |
| New York | No flat dollar floor | 10.9% of the estimated gain (2026) | Form IT-2663 |
Note the asymmetry: New York does not use a sale-price floor. New York withholds on the estimated gain, so a small or no-gain sale is handled through the gain math (Family 3), not a price threshold.
Two below-the-floor sales: Priya in California and Marcus in Colorado.
Priya moved from San Diego to Austin three years ago and still owns a small inland-Riverside condo. She sells it for a $95,000 gross sale price. California's rule: "No withholding is required unless the sales price of the real property conveyed exceeds $100,000." Because $95,000 is below $100,000, the 3.33% withholding does not apply.
- What 3.33% would have been: $95,000 × 0.0333 = $3,164 tied up until she files.
- What escrow actually withholds: $0.
- What Priya still does: escrow completes Form 593 for the file and checks the box certifying the total sales price is $100,000 or less. The form is generated even though no money is remitted.
Marcus lives in Wyoming and sells a Colorado mountain lot for $90,000. Colorado's rule exempts sales where "the selling price of the property is less than $100,000." Because $90,000 is under the floor:
- What 2% would have been: $90,000 × 0.02 = $1,800.
- What the title company withholds: $0.
- What Marcus signs: Form DR 1083, affirming the price is below $100,000 — so no DR 1079 remittance is made.
Net effect: two nonresident sellers walk away with their full proceeds at closing, $0 withheld, because both sales sat under the $100,000 floor — but only because the exemption was certified on the right form. Neither owner is off the hook for any actual income tax owed on the gain; they still report the sale on a nonresident state return at filing time.
Family 2: The primary-residence (Section 121) exemption
This is the most valuable carve-out for ordinary sellers. Federal IRC §121 lets a taxpayer exclude up to $250,000 of gain ($500,000 if married filing jointly) on the sale of a principal residence, provided the home "has been owned and used by the taxpayer as the taxpayer's principal residence for periods aggregating 2 years or more" within the 5-year period ending on the sale date. States that piggyback on §121 will waive withholding when the seller certifies the home qualifies.
How New York applies it on Form IT-2663
New York's IT-2663 is the clearest example. New York withholds at 10.9% (the 2026 top rate) of the estimated gain — but a nonresident selling a former New York principal residence that qualifies under §121 owes no payment. The catch the FAQ-driven sites get wrong: you must still file the form and complete the certification part; you do not simply skip it. The form is filed with the county recording officer at the time of the transfer, and the principal-residence exclusion is documented there so the recording officer accepts the deed with no IT-2663 payment.
Dana sells her former Brooklyn co-op after relocating to Florida. Dana lived in the unit as her main home from 2019 to 2024, then moved to Miami in 2024 and rented the place out for under a year before selling in 2026 for a $310,000 gain (she is single). Because she owned and used it as her principal residence for at least 2 of the 5 years before the sale, the first $250,000 of gain is excluded under §121.
- Estimated gain after the $250,000 §121 exclusion: $310,000 − $250,000 = $60,000.
- If she could fully exclude (gain ≤ $250,000), IT-2663 payment would be $0 and she would certify the principal-residence exemption.
- Because $60,000 of gain remains taxable, IT-2663 instead computes estimated tax on that residual: $60,000 × 10.9% = $6,540 due at recording — not 10.9% of the whole gain.
Takeaway: §121 doesn't just toggle withholding on or off — it shrinks the base the state withholds against. A fully-excluded sale withholds $0; a partially-excluded one withholds only on the leftover gain.
How California handles principal residence
California reaches the same place by a different route. FTB Form 593 lets the seller "certif[y] that the property conveyed was his or her principal residence" under IRC §121, and no 3.33% withholding is required. California does not pro-rate the way New York's gain math does — the principal-residence box is a full exemption from withholding when the seller signs the certification before close of escrow.
Family 3: Loss or zero-gain sales
Withholding is a pre-payment of income tax on the gain. If there is no gain, there is nothing to pre-pay. Every major state regime recognizes this:
- California: "No withholding is required if the seller/transferor certifies on FTB Form 593 that there is either a loss or zero gain for California income tax purposes from the sale." This is its own checkbox on Form 593, distinct from the principal-residence box.
- California (reduced, not zero): a seller may instead elect the optional gain-on-sale calculation — withholding on the actual gain at the applicable rate rather than 3.33% of the gross price. This helps high-mortgage sellers whose gross proceeds dwarf their real gain.
- New York: a zero-gain or loss sale produces an IT-2663 estimated tax of $0 because the gain it multiplies by 10.9% is zero or negative; the seller still files the form.
Tom sells an Oakland rental at a loss. Tom (a Nevada resident) bought a duplex for $740,000, put $40,000 into a failed renovation, and sells in a soft market for $690,000 gross. His adjusted basis is roughly $780,000, so the sale is a $90,000 loss.
- Default California withholding: $690,000 × 3.33% = $22,977 would otherwise be wired to the FTB.
- Because Tom certifies a loss on Form 593 (the loss/zero-gain box), withholding is $0.
- Had he instead had a small $5,000 gain, the optional gain-on-sale election would withhold on $5,000 at the applicable rate — a few hundred dollars — rather than $22,977 on the gross.
Lesson: never let escrow run the default 3.33%-of-gross calculation on a loss or thin-margin sale. The loss certification and the optional gain election exist precisely to stop tens of thousands of dollars from being parked with the state for a year.
The certification forms — how you actually claim an exemption
Exemptions are not automatic. Escrow, the title company, or the county recording officer will withhold the default amount unless the seller hands over a signed certification before closing. Here is who signs what:
| State | Form the seller signs | What it certifies | When / where filed |
|---|---|---|---|
| California | FTB Form 593 (Real Estate Withholding Statement) | $100k-or-less price, principal residence (§121), loss/zero gain, or optional gain election | Signed before close of escrow; remitter files with FTB within 20 days after month-end of closing |
| Colorado | Form DR 1083 (affirmation); DR 1079 to remit any tax | One of the listed affirmations — price under $100k, Colorado address on 1099-S, foreclosure, etc. | Provided to the title company / closing agent at the transfer |
| New York | Form IT-2663 (Nonresident Real Property Estimated Income Tax Payment) | Principal residence (§121), gift transfer, or no-gain transfer; otherwise estimated tax on gain | Filed with the county recording officer at the time of sale (not directly with the state) |
A signed exemption certification is an affidavit made under penalty of perjury. Sign only the box that genuinely applies, and keep documentation (settlement statement, basis records, proof of residence dates) — these are the figures an auditor checks if the return and the certification ever diverge.
Family 4: A residency-status change mid-year
Nonresident withholding only applies to nonresidents. If you change residency during the year, the question becomes: were you a resident of the state at the time the regime tests your status? Two scenarios:
- You move into the state before selling. If you have already established residency in the state where the property sits (you live there, registered to vote, changed your driver's license, etc.) and can certify a same-state address, the nonresident regime generally does not apply. Colorado, for example, exempts sellers when both the Form 1099-S and the disbursement authorization show a Colorado address — a residency proxy.
- You move out of the state before selling. A former resident who sells after relocating is treated as a nonresident for the sale and is squarely inside the withholding regime — but is often the exact person who qualifies for the §121 principal-residence exemption (see Dana, above). Residency change is what creates the withholding exposure, and §121 is what neutralizes it.
Elena becomes a California resident mid-year. Elena owned a Sacramento home as a Texas resident, then took a job in California and moved in March 2026, establishing California residency (lease, license, voter registration). She sells the Sacramento home in September 2026 for $480,000.
- Had she sold in January, while still a Texas resident, she would face the nonresident 3.33% test ($480,000 × 3.33% = $15,984 unless an exemption applied).
- Selling in September as an established California resident, she is no longer a "nonresident seller," so the nonresident withholding regime does not apply to her at all.
- She still owes California income tax on any gain as a resident — withholding is just a collection mechanism, not the tax itself.
Caution: residency is a facts-and-circumstances determination, not a date you pick. States scrutinize "convenient" mid-year moves around a large sale. Document the move genuinely, and when the timing is close to the sale, get a professional opinion before relying on a status change to avoid withholding.
- $100,000 is the floor in CA and CO. A $95,000 California sale and a $90,000 Colorado sale are both exempt from withholding (3.33% and 2% respectively) — but you still certify the exemption on Form 593 / DR 1083.
- Section 121 is the big one. Up to $250k single / $500k MFJ of principal-residence gain is excludable, which waives or shrinks state withholding — New York pro-rates against the residual gain; California treats it as a full exemption.
- No gain, no withholding. A loss or zero-gain sale is exempt when certified (CA Form 593 loss box); a thin-gain sale can use California's optional gain-on-sale election instead of 3.33% of gross.
- New York has no price floor. IT-2663 withholds 10.9% of the estimated gain (2026), so small/no-gain sales are handled through the gain math, not a dollar threshold.
- Residency change cuts both ways. Moving in can remove you from the nonresident regime; moving out puts you in it — but §121 usually rescues the former-resident home seller.
- Exemptions are claimed, never assumed. Hand the signed certification to escrow before closing, or the default withholding wires out automatically.
Official sources
- California FTB — 2025 Instructions for Form 593, Real Estate Withholding (3.33% rate; $100,000, principal-residence, and loss/zero-gain exemptions).
- California Code of Regulations — 18 CCR § 18662-3, Real Estate Withholding.
- Colorado Department of Revenue — DR 1083, Information with Respect to a Conveyance of a Colorado Real Property Interest (2% rate; under-$100,000 exemption).
- New York Department of Taxation and Finance — Instructions for Form IT-2663 (10.9% 2026 rate; §121 principal-residence exemption).
- Internal Revenue Code — 26 U.S.C. § 121, Exclusion of gain from sale of principal residence ($250k/$500k; 2-of-5-year test).
Frequently asked questions
Does state withholding apply if my sale price is exactly $100,000?
It depends on the state's wording. California exempts sales where the price "does not exceed $100,000," so $100,000 itself is exempt. Colorado exempts sales where the price is "less than $100,000," so a sale at exactly $100,000 is not exempt in Colorado. Read the specific state form, and when you're on the line, certify only if your facts match the exact language.
If I qualify for the Section 121 exclusion, do I still have to file anything?
Yes. The principal-residence exemption waives the payment, not the paperwork. New York requires you to file Form IT-2663 with the county recording officer and document the §121 exemption; California requires the seller to complete and sign the principal-residence certification on Form 593 before close of escrow. Skip the form and escrow will withhold the default amount.
What if my home gain is larger than the $250,000 / $500,000 exclusion?
Only the gain above the exclusion is taxable, and that residual is what gets withheld against. In New York, IT-2663 multiplies the leftover gain by 10.9% (2026). So a single filer with a $310,000 gain excludes $250,000 and the state withholds 10.9% of the remaining $60,000 — about $6,540 — not 10.9% of the full $310,000.
Can I avoid withholding by claiming a loss?
You can avoid it if you genuinely have a loss or zero gain and certify so on the state form (in California, the loss/zero-gain box on Form 593). This certification is made under penalty of perjury, so your basis math has to hold up. For a small but nonzero gain, California's optional gain-on-sale election lets escrow withhold on the actual gain rather than 3.33% of the gross sale price.
I moved out of state right before selling my home — am I a nonresident for withholding?
Generally yes — selling after you relocate makes you a nonresident seller for that transaction, which is exactly when state withholding bites. The good news is that a former-resident home seller is usually the person who qualifies for the §121 principal-residence exemption, which neutralizes the withholding. Document your move-out and prior occupancy dates.
Is this the same as FIRPTA?
No. FIRPTA is the federal 15% withholding under IRC §1445 that applies only when the seller is a foreign person. State nonresident withholding (this page) applies to U.S. persons who live in a different state. A foreign seller can owe both; a U.S. out-of-state seller typically faces only the state regime. See our FIRPTA basics & forms hub for the federal mechanics.
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