Real estate withholding
The governing withholding laws (California Code of Regulations, Title 18, Sections 18662-0 through 18662-6, and Section 18662-8) were revised and are effective as of November 2019. Beginning January 1, 2020, California real estate withholding will change. We now have one Form 593, Real Estate Withholding Statement, which is filed with FTB after every real estate transaction.
For more information, see Form 593 instructions.
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
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.
Your exchange can fail for many reasons, refer to Internal Revenue Code Section 1031. Withholding is required if the exchange fails unless an exemption is met.
When you trade property and receive other property (cash), its “boot”. Withholding is required on boot over $1,500.
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, Part III for a complete list of full exemptions, and Part IV for full or partial exemptions.
To file your exemption, submit Form 593 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.
There are two types of trusts; a grantor and a nongrantor 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.
A nongrantor trust is an entity separate from the grantor for all tax purposes. Complete Form 593 using the name of the trust and its FEIN.
Do not use the trustee’s information.