Tax News
Reporting and Remitting Real Estate Withholding on Installment Sales

For installment sales occurring on or after January 1, 2009, California requires withholding on the principal portion of each installment payment if the sale of California real property is structured as an installment sale. The buyer and the real estate escrow person must withhold and remit the proper amounts and providing the seller with the proper paperwork.

The real estate escrow person will withhold on the first installment payment. The real estate escrow person computes the first installment payment by subtracting from the total sales price (consideration) the amount of the installment obligation (seller take back). The real estate escrow person withholds the required amount from the first installment payment in escrow and remits it to us by the 20th day of the month following the month in which the transaction occurred along with a copy of the promissory note and one of the following completed forms:

  • Form 593, Real Estate Withholding Tax Statement, signed and certified by the sellers.  
  • Form 593-V, Payment Voucher for Real Estate Withholding.
  • Form 593-I, Real Estate Withholding Installment Sale Acknowledgment.

The real estate escrow person must send one copy of Form 593 to the seller by the 20th day of the month following the end of the month in which the transaction occurred. The escrow person must also retain a copy of Forms 593, 593-V, or 593-I, and the promissory note for a minimum of five years and must provide it to us upon our request. 

The buyer must withhold the required amount from the seller on the principal portion of each subsequentinstallment payment and remit to us by the 20th day of the month following the month of the installment payment with the following completed forms:

  • Form 593, Real Estate Withholding Tax Statement.

Note: You do not need to obtain the sellers signature on each subsequent completed Form 593.

  • Form 593-V, Payment Voucher for Real Estate Withholding.

The buyer must also send one copy of Form 593 to the seller by the 20th day of the month following the month of the installment payments.

The buyer must promptly inform us if the terms of the installment sale, promissory note, or payment schedule change. When sending the final installment payment, write “Final Installment Payment” on the bottom of Form 593.

Optional: Withholding on Installment Sale Elect-out Method:

If the seller elects out of the installment method to recognize the entire gain in the year of sale and files a California tax return reporting the entire sale on Schedule D-1, they may request, on behalf of the buyer, to be relieved of withholding. After filing the tax return and reporting the entire gain, the seller must submit a written request to us to release the buyer from withholding on the installment sale payments. We recommend that you call us at 888.792.4900 or 916.845.4900 (outside California) for specific information on how to make your request. Once we receive the request, we will issue an approval or denial within 30 days.

For more information, go to ftb.ca.gov and search for real estate withholding.

Back to December 2012 Tax News