As of 2003, real estate withholdings in California have become commonplace for both residents and non-residents alike. It’s important to understand how withholdings work so that you’re prepared for the real estate process. Find out more about these withholdings so that you’re well informed for your property sale.
About California Withholdings.
California law requires real estate withholdings for both residents and non-residents. When a buyer submits an offer on a property, a portion of profit that would be paid to the seller is withheld in taxes. Current withholdings are priced at three and a third percent of the gross sale price. Withholdings must be paid to the state by the 20th day following the transfer of the property’s title.
Generating More Revenue.
The decision to pass legislation to require property withholdings for California residents came in 2002. To help balance the state budget, the withholdings were estimated to being $285 million dollars to the state.
There are certain exemptions that may apply. As a seller, you must submit the proper paperwork and sign a document that states that they are eligible for exemption. There may be exemptions for involuntary conversion of property and tax deferred exchanges. Additionally, there are exemptions if the property is being sold for $100,000 or less. If the property is being sold for a loss or if the property is a principal residence for individual owners, you may qualify for an exemption.
Escrow & Real Estate Withholdings.
During escrow, your office must provide you with a notice of the withholding requirements. However, they are unable to make any legal determinations about your withholdings. They are, however, able to remit the withholding to the Franchise Tax Board if all parties involved agree.
Filing Income Taxes.
It’s possible for the seller to retrieve their withholdings if the amount withheld exceeds the capital gains tax of the sale. When filing income taxes, include the property sale and the withholding so that the seller has the opportunity to retrieve at least some of withheld profits.
To learn more about real estate withholdings in California, contact your Fidelity National Title Sales Executive!