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Changes to California real estate withholding laws

PURPOSE OF BULLETIN

To advise staff of the provisions of Assembly Bill 2962, chaptered September 22, 2006. (Stats. 206 ch. 428)

BACKGROUND

For all California real estate transactions closing on or after January 1, 2007, the transferor must choose one of two ways to compute the amount of real estate withholding:

  1. Elect to compute the required withholding tax from the sale based on the reportable gain times the maximum tax rate applicable.
  2. Compute the required withholding from the sale based on 3⅓% of the sale price.

If the real estate withholding based on the gain is not elected or certified, withholding remains at 3⅓% of the total sale price.

ONLINE

The online calculator (not available yet) will calculate the gain/loss on the sale and the alternative withholding amount. The following maximum tax rates can be selected:


Entity Type Maximum Rate
Individual 9.3%
C Corporation 8.84%
C Corporation Bank or Financial 10.84%
S Corporation 1.5%
S Corporation Bank or Financial 3.5%


The calculator will also calculate the withholding amount based on 3⅓% of the total sale price for comparison.

The calculator will print Form 593-E.

Note: The form will state, "Title and escrow persons, and exchange accommodators are not authorized to provide legal or accounting advice for purposes of determining withholding amounts. Transferors are strongly encouraged to consult with a competent tax professional for this purpose."

FORMS

The following forms incurred the largest changes and are available on our Website:
 
Form 593-B, Real Estate Withholding Tax Statement. The election and certification for the alternative withholding amount.

Form 593-E, Real Estate Withholding – Computation of Estimated Gain or Loss. (Form not available yet.) The 593-E is used to calculate the gain or loss on the sale and the alternate withholding amount. This form is replacing Form 593-L.

Important: The seller must maintain this form for 5 years.

Form 593-L, Real Estate Withholding – Computation of Estimated Gain or Loss. This form is obsolete.

WSCS PUBLIC SEMINARS

The Withholding Services and Compliance Section is scheduling seminars throughout the state with the escrow, real estate, and title industries. Seminars can be requested at: WSCS.seminar@ftb.ca.gov.

Articles have been published in the California Escrow Association Newsletter, Spidell’s California Taxletter®, and the FTB Tax News.

 

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