BE AWARE: CALIFORNIA REAL ESTATE WITHHOLDING TAXES MAY APPLY

BE AWARE: CALIFORNIA REAL ESTATE WITHHOLDING TAXES MAY APPLY

Real estate withholding is the prepayment of California State Income Tax for sellers of California real property. Real estate withholding is not an additional tax on the sale of real estate. It is a prepayment of the income or franchise tax due on the gain from the sale of California real property. The withholding rate is three and one-third percent of the gross sales price or an optional gain on sale withholding based on the maximum tax rate on the gain on sale as follows: 9.3% for individuals, 8.84% for corporations, 10.84% for banks and financial corporations, 1.5% for S corporations, 3.5% for financial S corporations

The withholding law applies to dispositions of California real estate by both residents and non-residents which close on or after 1/01/2003. The law requires the buyer (called the transferee) to withhold from what otherwise would be paid to the seller.

EXEMPTIONS: If you are an individual selling property, the buyer will not have to withhold from your proceeds if the sales price is less that $100,000, or you are selling your principal residence or if you are selling at a loss. Other exemptions are for tax deferred exchanges and involuntary conversions of property. The rules incorporate Internal Revenue Code Section 121 to determine whether the property qualifies as a principal residence and considered exempt from the California withholding requirements.

The seller is required to sign a statement under penalty of perjury to establish eligibility for the exemption.

The only way to recover the withholding is by filing a California State Income Tax Return for the year in which the sale occurred. The seller will be entitled to a refund in the amount that the withholding exceeds the amount of capital gains due by reason of the sale. For a complete summary of The State of California Real Estate Withholding Guidelines go to:

http://ftb.ca.gov/forms/misc/1016.pdf

The above is for informational purposes only and not meant to be tax advice or advice regarding your individual situation. Tax advice should be obtained from your real estate tax professional.

Chuck and Anne Hanna

Two Real Estate Brokers, MBA, Attorney

Serving Our Community Since 1990

Alain Pinel Realtors

hanna@south-bayhomes.com

www.sanjosemlshomes.com