Real estate withholding

Real estate withholding is a prepayment of income tax due from the selling of California land or anything on it (real property).

Examples of real property:

  • Vacant land
  • Buildings
  • Homes

Withholding is required on sales or transfers of:

  • Real property (including exchanges).
  • Interest in land owned by someone else (Easements).

Exchange of real property

When you trade real property for another real property, this is considered an exchange.

Failed exchange

Your exchange can fail for many reasons, refer to Internal Revenue Code Section 1031.

Boot

When you trade property and receive other property (cash), its “boot”. Withholding is required on boot over $1,500.

Exemptions

You do not have to withhold tax if the CA real property is:

  • $100,000 or less
  • In foreclosure
  • Seller is a bank acting as a trustee
  • See Form 593-C for complete list of exemptions.

To file your exemption, submit Form 593-C to your escrow agent before closing.

Withholding when a trust is on a title

Real estate withholding is required on the sale of CA real property held by a trust unless the trust can qualify for an exemption on Form 593-C.

There are two types of trusts; a grantor and a non-grantor trust.

Grantor trust

A grantor is the person who created the trust and controls the trust assets.

The grantor reports the real estate sale and claims the withholding on their tax return.

Unless the grantor qualifies for an exemption, complete Form 593 using the grantor’s information.

Non-grantor trust

A non-grantor trust is an entity separate from the grantor for all tax purposes. Unless the non-grantor trust qualifies for an exemption, complete Form 593 using the name of the trust and its FEIN.

Do not use the trustee’s information.