Understanding Withholdings on Real Estate Sales

When did withholding start for California residents?
The withholding law applies to dispositions of California real
estate by both residents and non-residents which close on and
after January 1, 2003. Previously, withholding was only
required of non-resident sellers.
Why was this withholding law enacted? As part of
attempting to balance the state budget, this withholding
provision was added to legislation on the last day of the
Legislative session in 2002. It was estimated to accelerate
collection of $285 million in additional state revenue.
Who is responsible for withholding? The law requires the
buyer (called the transferee) to withhold from what would
otherwise be paid to the seller.
How much is the withholding? The withholding is 3 1/3% of
the gross sale price. It does not take into account costs of the
sale such as real estate commissions or other settlement costs.
Withholding is currently due by the 20th day of the calendar
month following the date title is transferred or may be
remitted on a monthly basis in combination with other
transactions closed during that month. California Forms 593
and 593B are used to report and a remit copy must be
provided to the seller to attach to their tax return.
What exemptions apply? If you are an individual selling
property, the buyer will not have to withhold from your
proceeds if the sale price is less than $100,000, or you are
selling your principal residence or if you are selling at a
loss. Other exemptions are for tax deferred exchanges and
involuntary conversions of property.