Understanding Real Estate Withholding Tax In CA can be a little tricky.
Let me break it down for you.
The Franchise Tax Board is responsible for collecting the taxes on the sale of California real property.
The tax is generally 3.33% of the sales price, but an Alternative Calculated Amount can also be used.
The tax is generally withheld by the escrow company at the close of the transaction from the Seller’s proceeds and then the money is forwarded to the Franchise Tax Board.
If the property is sold by a non-resident, the withholding amount is increased to 10% of the sales price. The purpose of withholding is to ensure that the tax is paid.
You should also know that there are certain exceptions to these withholding requirements, such as
If the sales price is $100,000.00 or less
The Seller has owned and used the property as his principal residence at least 2 out of the 5 year period right before the sale
The Seller is a California corporation, limited liability company, or partnership that is NOT a single-member entity
Sale of property for an amount that equals a taxable loss or zero gain
Or you are doing a Tax-deferred exchanges