Understanding Withholdings Part 2

By
Title Insurance with Stewart Title of California

Does the seller have to do anything to qualify for
exemptions?
Yes. The seller will be required to sign a
statement under penalty of perjury to establish eligibility for
the exemption.

Can the seller apply to the Franchise Tax Board for an
exemption?
The law allows applications for reduced
withholding and waivers but not by individuals, only by
corporations and other entities.

What happens if there are several sellers on title? If the
total purchase price exceeds $100,000.00, withholding rules
apply. To determine the amount of withholding, each owner
is considered separately and the withholding is calculated on
each owner's pro-rata share of sales proceeds. It is possible for
the transaction to be exempt for one seller but not for the other
part owners.

How do I know if the property qualifies as my principal
residence?
The rules incorporate Internal Revenue Code
Section 121 to determine whether the property qualifies as a
principal residence. There are two separate exemptions under
California law which relate to the use and ownership tests
under Section 121. Generally, the seller will either have had to
have owned and lived in the property for two of the previous
five years or the last use will have to have been as the seller’s
principal residence. Note that the two year period may be
made up of different blocks of time which add up to two years
over the five year period. A seller who lived in the property for
one year, then rented it out for a period of time followed by
another year of residency in the property would qualify for the
exemption.

Comments (6)

Jim Frimmer
HomeSmart Realty West - San Diego, CA
Realtor & CDPE, Mission Valley specialist

Great information, Scott. Thanks! I also feel this intense desire to reblog this, so that’s what I’m going to do!

Apr 20, 2011 05:19 PM
Jon Quist
REALTY EXECUTIVES ARIZONA TERRITORY - Tucson, AZ
Tucson's BUYERS ONLY Realtor since 1996

I suspect, sadly, each state has it's own set of rules. Sure good tips for California agents, though.

Apr 20, 2011 05:27 PM
Jim Frimmer
HomeSmart Realty West - San Diego, CA
Realtor & CDPE, Mission Valley specialist

Withholdings might be one of the more difficult things for me to try to explain to my Clients. Now I have a blog post to send them to!

Aug 16, 2011 09:20 AM
Don Sabinske
Don Sabinske, Sabinske & Associates Inc. - Zimmerman, MN
Sabinske & Associates Inc.

Good information for California residents.  You did a great job.  Keep up the good work!

Aug 25, 2011 08:59 AM
Shar Sitter
Rooms With Style - Minneapolis, MN
Home Staging and Redesign Minneapolis/ St. Paul, M

MN has strict withholding rules too Scott. It started not because they were broke, they just wanted any reason to take your money. :)

Aug 25, 2011 11:25 AM
Scott Mazza
Stewart Title of California - Ventura, CA

I believe that is a main reason here in Ca as well Shar.


I wish you all a great Friday. Thanks for the comments. Be Great!

Aug 26, 2011 02:26 AM