What is the 593 Real Estate Withholding Statement that is required when California real estate is sold or transferred?

Click the form above to download a fill-able copy of the 593

When selling a property in California, the State requires a seller to fill out a 593 Real Estate Withholding Statement to help the State calculate what tax if any you will be requites to pay. Escrow has to take out an automatic 3 1/3 percent unless they are otherwise instructed that you are tax exempt or doing a 1031 Exchange. You can read more about this below and referenc

https://www.ftb.ca.gov/forms/2020/2020-593-instructions.html

General Information

In general, for taxable years beginning on or after January 1, 2015, California law conforms to the Internal Revenue Code (IRC) as of January 1, 2015. However, there are continuing differences between California and federal law. When California conforms to federal tax law changes, we do not always adopt all of the changes made at the federal level. For more information, go to ftb.ca.gov and search for conformity. Additional information can be found in FTB Pub. 1001, Supplemental Guidelines to California Adjustments, the instructions for California Schedule CA (540 or 540NR), and the Business Entity tax booklets.

The instructions provided with California tax forms are a summary of California tax law and are only intended to aid taxpayers in preparing their state income tax returns. We include information that is most useful to the greatest number of taxpayers in the limited space available. It is not possible to include all requirements of the California Revenue and Taxation Code (R&TC) in the instructions. Taxpayers should not consider the instructions as authoritative law.

Real Estate Withholding Requirement

Withholding is required when California real estate is sold or transferred. The real estate escrow person (REEP) is required to notify buyers of withholding requirements, unless the buyer is a Qualified Intermediary (QI) in a deferred exchange. The amount withheld from the seller or transferor is sent to the FTB as required by R&TC Section 18662.

For more information about real estate withholding, get FTB Publication 1016, Real Estate Withholding Guidelines.

Real Estate Escrow Person (REEP) – The REEP is anyone involved in closing the real estate transaction which includes any attorney, escrow company, title company, QI, or anyone else who receives and disburses payment for the sale of real property.

Remitter – The person who will remit the withheld tax on any disposition from the sale or exchange of California real estate and file the prescribed forms on the buyer’s/transferee’s behalf with the FTB.

Like-Kind Exchanges – California requires taxpayers who exchange property located in California for like-kind property located outside of California, and meet all of the requirements of the IRC Section 1031, to file an annual information return with the FTB. For more information, get form FTB 3840, California Like-Kind Exchanges, or go to ftb.ca.gov and search for like kind.

Installment Sales – The REEP reports the sale or transfer as an installment sale if there will be at least one payment made after the tax year of the sale. The withholding is 3 1/3% (.0333) of the down payment during escrow. Buyers/Transferees are required to withhold on the principal portion of all payments made following the close of the real estate transaction, unless an approval letter for elect-out method is received as described below. See Specific Instructions for more information on installment sales.

Elect Out of Subsequent Installment Payment Withholding – Sellers or transferors can elect to not report the sale on the installment method. If the seller/transferor chooses not to use the installment method, the seller/transferor generally reports the entire gain in the year of sale, even though the seller/transferor does not receive all the sale proceeds in that year. To do this, the seller/transferor must:

• File a California income tax return and report the entire gain on Schedule D, California Capital Gain or Loss Adjustment, or Schedule D-1, Sale of Business Property.
• Submit to the FTB a written request to release the buyer/transferee from withholding on subsequent installment payments after filing the income tax return and reporting the entire gain.

The FTB will approve or deny the request within 30 days from when received. The buyer must continue to withhold until the FTB approves the request.

For more information, get FTB 4010, Withholding on California Real Estate Installment Sales, or go to ftb.ca.gov and search for installment sales.

Alternative Withholding Calculation Amount is calculated when the alternative withholding calculation election has been made by the seller/transferor. The withholding amount is calculated by multiplying the seller’s/ transferor’s applicable tax rate by the estimated gain determined in Part VI, Computation.

You may use estimates when you complete Part VI, but the estimates must not result in the calculation of a loss when you actually have a gain. Any seller/transferor who, for the purpose of avoiding the withholding requirements, knowingly executes a false certificate is liable for a penalty of $1,000 or 20% of the required withholding amount, whichever is greater.

Registered Domestic Partners (RDP) – For purposes of California income tax, references to a spouse, husband, or wife also refer to a California RDP, unless otherwise specified. When we use the initials RDP they refer to both a California registered domestic “partner” and a California registered domestic “partnership,” as applicable. For more information on RDPs, get FTB Pub. 737, Tax Information for Registered Domestic Partners.

To read more visit the California Franchise Tax Board website at: https://www.ftb.ca.gov/forms/2020/2020-593-instructions.html