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FTB requests tax returns on real estate withholding cases

In mid-April, FTB began mailing more than 9,000 Requests for Tax Returns (FTB 3953R or 3954R) to nonfilers who have real estate withholding credits for 2004 and 2005 tax years.

Until December 31, 2002, only nonresident sellers of California real estate were subject to withholding law. Subsequent laws amended California Revenue and Taxation Code Sections 18662 and 18668, relating to real estate withholding. AB 2065, passed in 2002, extended the withholding requirement to California residents who sell real estate, to withhold 3.3 percent of the total sales price. AB 2962, passed in 2006, gave sellers an option to withhold on the sales gain only (9.3 percent for individuals, 8.84 percent for corporations), rather than withholding 3.3 percent of the total sales price.

Real estate sellers must file a California tax return to claim the real estate withholding credit. Failure to file the tax return and report the sale within three months and 15 days (two months and 15 days for corporations) after the close of the taxable year may result in penalties.

If you have clients who receive a Request for Return, they must either:

  • File the returns.

Or

  • Show that they do not have a filing requirement.

FTB will issue a Notice of Proposed Assessment to nonfilers that do not respond to our request for a return within 45 days.

For more information about real estate withholding, consult our Requirements for Sale of California Real Estate web page.