On September 22, 2006, the governor signed AB 2962. This new law amends Revenue and Taxation Code Sections 18662 and 18668, making changes to real estate withholding requirements for all transactions closing on or after January 1, 2007.
Previously, where withholding was required, sellers had to withhold three and one-third percent of the property's sale price. Now, sellers may choose between the original withholding method, or elect an alternate withholding amount based on applying the maximum tax rate to the seller's estimated gain. The maximum tax rates are:
| • Individuals: | 9.3 percent. |
| • Corporations: | 8.84 percent. |
| • Banks and financial corporations: | 10.84 percent. |
| • S corporations: | 1.5 percent. |
| • Financial S corporations: | 3.5 percent. |
Sellers electing an alternate withholding amount will be required to certify the amount in writing, under penalty of perjury.
Forms
With new laws come new forms, and changes to existing forms. All current forms are online and fillable.
Forms FAQs
- How does the seller elect to withhold on the gain?
- The seller calculates the amount of gain and the alternate withholding amount on Form 593-E, Real Estate Withholding - Computation of Estimated Gain or Loss. If electing the alternate withholding amount, the seller completes, signs, and maintains the Form 593-E for five years.
- The seller must certify Form 593-B, Real Estate Withholding Tax Statement, which the withholding agent submits to FTB, along with Form 593, Real Estate Withholding Remittance Statement, and the withholding amount.
- Who is responsible for completing and maintaining Form 593-E, Real Estate Withholding - Computation of Estimated Gain or Loss?
The seller is responsible for completing Form 593-E, which assists in calculating the loss, or zero gain, and the alternate withholding amount. If claiming a loss, or zero gain, or electing an alternate withholding amount, the seller must complete and certify the form. The seller is to maintain the form for five years and furnish the form to FTB upon request. - Is the seller required to complete, sign, and provide the withholding agent with the completed Form 593-C, Real Estate Withholding Certificate?
No. This form is to be completed only if the seller claims a full or partial withholding exemption. Under those circumstances, the seller must give a completed and certified Form 593-C to the withholding agent. Otherwise, the withholding amount will be either three and one-third percent of the total sale price, or the alternate withholding amount certified by seller on Form 593-B. - Is the withholding agent responsible for verifying the alternate withholding amount stated on Form 593-B?
No. As long as the form is complete, and certified under penalty of perjury, no other verification is required. - Is the seller required to provide the Form 593-E to the withholding agent?
No. The seller completes, certifies, and maintains Form 593-E if claiming a withholding exemption due to a loss or zero gain on the sale, or if the seller elects the alternate withholding amount. The seller is to maintain the form for five years, and furnish the form to FTB upon request. - In an installment sale, is the seller required to sign Form 593-B for each installment payment submitted to FTB?
No. If the buyer elects to withhold on each installment payment, the buyer will be required to execute Form 593-I, Real Estate Withholding Installment Sale Agreement. Form 593-I must be submitted to FTB along with a copy of the signed promissory note (showing the installment payment requirements), and a copy of the seller's original certification of Form 593-B (which is submitted on the first payment in escrow or by the withholding agent).
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