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Increase to California Real Estate Withholding Tax Rates

Purpose of Bulletin

To inform staff that the optional gain on sale of real estate withholding tax rates increased for individuals, non-California partnerships, S corporations, and financial S corporations when using the optional gain on sale election method.

Background

The passage of Proposition 30 resulted in an increase to the optional gain on sale withholding tax rates for individuals, non-California partnerships, S corporations, and financial S corporations. The increase was effective January 1, 2012. However, our revised forms did not reflect the increased rates until late 2012. If the lower rate was used during 2012, we will find reasonable cause and not impose penalties on any underpayment that was due to the Proposition 30 rate increase.

The new rates are:

  • 12.3 percent for individuals and non-California partnerships.
  • 13.8 percent for S corporations.
  • 15.8 percent for financial S corporations.

Taxpayers that may be under withheld will not be assessed an underpayment of estimated tax penalty when the underpayment is a result of the change in the tax rate. The Taxpayer Information System will calculate the estimated tax penalty using the lower tax rates to eliminate the additional amount imposed due to the tax increase.

The following forms and publication were changed to reflect the new tax rates:

  • Form 593, Real Estate Withholding Tax Statement
  • Form 593-E, Real Estate Withholding – Computation of Estimated Gain or Loss
  • Form 593-I, Real Estate Withholding Installment Sale Acknowledgement
  • FTB Pub. 1016, Real Estate Withholding Guidelines

Taxpayer Inquiries

For more information about real estate withholding go to ftb.ca.gov, and search for real estate withholding, or contact us at:

  • 888.792.4900
  • 916.845.4900, if outside the United States