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State of California Franchise Tax Board

Tax News
Report and Remit Real Estate Withholding on Installment Sales

We require withholding on the principal portion of each installment payment if the sale of California real property is structured as an installment sale as evidenced by a promissory note. The real estate escrow person and buyer withhold and remit the proper amounts and provide the seller with the proper paperwork.

The real estate escrow person is responsible to:

  • Withhold on the first installment payment.
  • Compute the first installment payment by subtracting from the total sales price (consideration) the amount of the installment obligation (seller take back).
  • Withhold the required amount from the first installment payment in escrow and remit to us by the 20th day of the month following the month in which the transaction occurred.
  • Remit payment with the following completed forms and promissory note using the current taxable year:
    • California Form 593, Real Estate Withholding Tax Statement, signed and certified by the sellers.
    • California Form 593-V, Payment Voucher for Real Estate Withholding.
    • California 593-I, Real Estate Withholding Installment Sale Acknowledgment.
    • A copy of the promissory note attached to Form 593-I.
  • Retain a copy of Forms 593, 593V, 593-I, and the promissory note for a minimum of five years and provide it to us upon our request.

The buyer is responsible to:

  • Withhold the required amount from the seller on the principal portion of each subsequent installment payment and remit to us by the 20th day of the month following the month of the installment payment.
  • Remit payment with the following completed forms using the taxable year form for which you are sending the withholding payment. Do not use the copy of the form provided to you during escrow:
    • California Form 593, Real Estate Withholding Tax Statement.
      Note: You do not need to obtain the seller's signature on each subsequent, completed Form 593.
    • California Form 593-V, Payment Voucher for Real Estate Withholding.
  • Send one copy of California Form 593 to the seller by the 20th day of the month following the month of the installment payments.
  • Promptly inform us if the terms of the installment sale, promissory note, or payment schedule change.
  • Write “Final Installment Payment” on the bottom of California Form 593 when sending the final installment payment.

How to elect-out of withholding on an installment sale:

The seller may elect out of the installment method by recognizing the entire gain in the year of sale and file a California tax return to report the entire sale on Schedule D-1. The seller may request, on behalf of the buyer, to be relieved of withholding. After filing the tax return and reporting the entire gain, the seller may submit a written request to us to release the buyer from withholding on the installment sale payments. Once we receive the request, we issue an approval or denial within 30 days.

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.

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

Back to August 2014 Tax News

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