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California Real Estate Withholding Laws Change

Assembly Bill 3078 amended California Revenue and Taxation Code sections 18662 and 18668 withholding laws effective January 1, 2009. Changes are as follows:

Withholding Rates –Non-California partnerships are now subject to withholding requirements on the sale of California real property at a rate of 3 1/3% of sales proceeds or 9.3% of gain. The alternative withholding rates for the sale of California real property increased to 10.8 percent for S corporations and 12.8 percent for financial S corporations.

Installment Sales – Buyers are required to withhold on the principal portion of each installment payment if the sale of California real property is structured as an installment sale.

In addition, withholding amounts can be collected from the withholding agent if the withholding agent fails to withhold or fails to remit to us the withheld amounts. The new statute provides a clearer method for assessment and collection of unremitted withholding.

Forms – Changes have been made to the following withholding forms:  Form 593-I, Real Estate Withholding Installment Sale Acknowledgement; Form 593-E, Real Estate Withholding – Computation of Estimated Gain or Loss; Form 593, Real Estate Withholding Tax Statement.

As a continued benefit to withholding agents and taxpayers, Form 593-E automatically computes the estimated gain or loss on the sale of California real property and the alternative withholding amount. The following maximum tax rates can be selected:

  • Individuals 9.3 percent.
  • Non-California partnerships 9/3 percent(new rate).
  • Corporations 8.84 percent.
  • Bank and financial corporations 10.84 percent.
  • S corporations 10.8 percent (new rate).
  • Financial S corporations 12.8 percent (new rate).

The form also computes the withholding amount based on 3 1/3 percent of the total sales price for comparison.