Tax Withholding on Property Sales: What your Clients Should Know

Many sellers are unaware that the state of California requires tax withholding on the sale of all real estate property. Similar to the federal government’s FIRPTA (Foreign Investment in Real Property Tax Act) withholding laws, the State wants to enforce tax collection on those who do not live in, or who move out of, California.

How is Withholding Calculated?

Withholding tax is calculated in one of two ways:

  • 3 1/3% of the GROSS sales price, OR:
  • 12.3% of NET gain of the sale of the property

The good news is that most homeowners qualify for exemptions and a full waiver of the withholding tax. Form 593-C lists twelve possible certifications which can partially or fully exempt a Seller from withholding in a sale. The most common exemption is for homeowners selling their personal residence, in which they lived for at least two out of the previous five years.