it is not part of your cost or a selling expense. to insure that the gain on the sale of the property is taxed when applicable, many states require tax be withheld at closing to cover the taxes. the tax withheld is to cover the tax on the gain, if any. if you don't have a gain or the tax is less than the 3 1/3% in theory you would get a refund. I say in theory because it is treated the same as w-2 withholding or estimated tax payments. your tax is compared to total payments. pay more than the tax liability - get a refund. pay less - you owe. you get an itemized deduction (schedule A) on the federal return for these taxes. if you can not itemize or your total taxes on schedule A exceeds $10,000 some or all of the federal benefit will be lost.
note that there is not much difference if there was none of this withholding because you would owe more when filing or get a smaller refund. about the only difference would be if you owe because that would be paid in 2020 when your tax situation might be different.
