California withholding Tax Code Sections 18662 and 18668 have changed. When the laws were first passed the State was trying to balance it's sagging budget. Whether intentional or not, lawmakers passed rules to withhold more tax than due by forcing all California sellers to pay withholding equal to 3.5% of the gross sale?s price. Whether or not profit occurred, tax was withheld. And it was a big tax, too. At the end of the tax year, seller's would show such over-withholding on their tax return and get their money back. Sort of a forced savings plan.
Many homeowners, agents and legislators thought that withholding more tax than was due was a bad idea. Through strong lobbying efforts of CAR and local real estate boards, the State changed the rules. California resident individual sellers pay withholding only on the estimated amount of capital gain. Moreover, the two year occupancy requirement has also been liberalized to allow the withholding exemption if the property sold was the last residence of the seller. Have form 593-E completed at close of escrow and everyone is much happier.
This means that people actually get more money out of escrow, even if they are only paying off loans and closing costs, and that's a good thing. People can get on with their life, and move into the next home of their dreams without having to wait for next year?s tax refund.
This information brought to you by Steve Sanders of Keller Williams Realty Corona Market Center
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